3.8.7 An inequitable distribution of income and wealth

• An inequitable distribution of income and wealth exists when there is a significant disparity in the allocation of earnings and accumulated assets
• An equitable distribution of income and wealth ensures fair access to resources based on needs and contributions.


  True
• One key cause of income and wealth inequality is inheritance and intergenerational wealth transfer
• Match the cause of income inequality with its explanation:

  Inheritance and Intergenerational Wealth Transfer ↔️ Wealth passed through generations

  Discrimination and Lack of Equal Opportunities ↔️ Limits access to well-paying jobs
• Discrimination based on gender or race can contribute to income inequality.


  True
• What does a Gini coefficient of 0 indicate?

  Perfect equality
• The Gini coefficient ranges from 0 to 1, where 0 represents perfect equality
• Match the measure with its description:

  Gini Coefficient ↔️ Ranges from 0 to 1, based on the Lorenz curve

  Decile Ratios ↔️ Compares the top 10% to the bottom 10%
• The Gini coefficient provides specific information on the distribution of income within a population.

  False
• The negative impacts of income inequality outweigh its positive effects.

  True
• What does an inequitable distribution of income and wealth signify?

  Significant disparity in earnings
• What does 'income' refer to in the context of wealth inequality?

  Flow of earnings
• What does 'wealth' include?

  Total assets owned
• Unequal access to quality education can lead to disparities in earning potential.


  True
• Why do individuals with higher education and specialized skills earn higher incomes?

  Increased productivity
• Monopoly power and rent-seeking behavior can concentrate wealth and excess profits
• The Gini coefficient is calculated by comparing the Lorenz curve to the line of perfect equality.

  True
• The Lorenz curve is compared to the line of perfect equality to calculate the Gini coefficient.

  True
• The Palma Ratio compares the income/wealth of the top 10% to the bottom 40%
• What is one negative effect of income inequality on economic growth?

  Reduced consumer demand
• Income inequality can incentivize individuals to work harder and innovate
• What does wealth comprise in the context of income and wealth inequality?

  Accumulated assets
• What is one key cause of income and wealth inequality related to inheritance?

  Intergenerational wealth transfer
• Discrimination based on socioeconomic status can contribute to income inequality.


  True
• Steps to calculate the Gini coefficient

  1️⃣ Create the Lorenz curve

  2️⃣ Identify the line of perfect equality

  3️⃣ Measure the area between the Lorenz curve and the line of perfect equality
• The Gini coefficient ranges from 0 to 1, where 0 represents perfect equality
• What graphical representation is used to calculate the Gini coefficient?

  Lorenz curve
• Order the steps in calculating the Gini coefficient.

  1️⃣ Calculate the area between the Lorenz curve and the line of perfect equality

  2️⃣ Divide the area by the total area under the line of perfect equality

  3️⃣ Subtract the result from 1
• The Gini coefficient ranges from 0 to 1, where 1 represents perfect inequality
• Higher crime rates are correlated with income disparities
• One policy to address income inequality is progressive taxation
• Social welfare programs can improve opportunities and living standards for lower-income individuals.


  True
• Taxing the transfer of intergenerational wealth can help break the cycle of inequality
• Progressive taxation may disincentivize high earners from working harder.


  True
• What is one weakness of social welfare programs in addressing inequality?

  May create dependency
• Inheritance and wealth taxes may lead to capital flight and reduced savings.


  True
• Match the term with its definition:

  Income ↔️ Earnings received over a period

  Wealth ↔️ Total assets owned, including property
• Unequal access to quality education can lead to disparities in earning potential
• What does a Gini coefficient value of 0 indicate?

  Perfect equality
• The Gini coefficient is based on the comparison between the Lorenz curve and the line of perfect equality