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Economics - the distribution of income and wealth - Coggle Diagram
Economics - the distribution of income and wealth
Inequality - concerns the unequal distribution of wealth and income in the UK
Policies aimed at tackling inequality:
Cap of incomes - the rich cannot continue to get rich and it stops at a certain point
More progressive tax rate - the rate at which people can get rich slows and is redistributed to those less fortunate
Improve provision of education - everyone has equal opportunity to become the best version of themselves
Measuring inequality
Gini-coefficient: The Gini-coefficient is a numerical measure of inequality for a country. It ranges from 0 to 1 with 1 being perfect inequality and 0 being perfect equality
UK gini: 0.351
Slovakia gini: 0.232
South Africa gini: 0.63
Lorenz curve: The lorenz curve is a graphical representation of inequality in a country. The further away the lorenz curve is to the line of equality, the more unequal a country is
Link to image off lorenz curve
On the y-axis for the Lorenz curve, it is cumulative % of income. On the x-axis it is the cumulative % of population. Y=X shows perfect equality. The closer the lorenz curve is to the line of perfect equality, the more equal a country is. The lorenz curve compares the actual distribution of income to perfect equality. Norway is very equal and South Africa is very unequal.
Palma ratio: The Palma Ratio compares the share of national income of the richest 10% of the population to the share of national income of the poorest 40% of the population.
Palma Ratio (P) = Top 10% Share / Bottom 40% Share
UK Palma ratio: 1.4
Norway Palma ratio: 0.88
South Africa Palma ratio: 7.1
Palma ratio does not include 50% of the population therefore not giving as fair of a representation than the gini coefficient
Inequality may not be bad as long as whole population is making more money
Poverty
Relative - Where an individual does not have enough income to enjoy the standard of living that is enjoyed by most people in the society in which they live. Generally, people who have less than 60%, or sometimes 50%, of median income are considered to be in relative poverty.
Absolute - Where an individual does not have enough income to satisfy their basic human needs.
Poverty - A state or condition in which an individual lacks the financial resources and essentials for a certain standard of living. Poverty can have diverse environmental, legal, social, economic, and political causes and effects.
Causes:
Unemployment which can be cyclical due to booms and busts in an economy, or structural which is derived from the closing down of whole industries.
Poor education or skills, meaning people have not had the opportunity to gain the education or skills necessary to get the higher paid jobs
Poor health or healthcare
Wage differentials
Born into poverty stricken household
Tax cuts for the well off, more income after tax therefore bring up the median income and causing relative poverty to increase Subsistence agriculture (developing countries)
Effects:
Poverty cycle - If born into a poor household, it is more difficult to escape poverty. If they then have children, they might also be trapped. This leads to generations of people trapped in poverty
Poor education or lack of opportunities
Poor quality of life
Crime
Lower life expectancy
High government spending on supporting poverty Lower productivity