An inequitable distribution of income wealth

• What does income refer to?


  A flow of money from sources such as a job, interest payments, rents, or dividends.
• What does wealth refer to?

  A stock of assets, such as holding shares in a company or owning a house.
• What is likely to happen in the absence of government intervention regarding income and wealth distribution?

  The market mechanism is likely to result in a very unequal and inequitable distribution of income and wealth.

  
• What negative externalities can arise from an unequal distribution of income and wealth?

  Social unrest can occur as a negative externality of unequal distribution.
• How does an inequitable distribution of income and wealth affect resource allocation in a market economy?

  It is likely to lead to a misallocation of resources and hence market failure.
• Who are some of the consumers that might not be able to buy goods and services at all?

  Those with the lowest incomes, including the unemployed, the underemployed, the elderly, and low-skilled workers.
• How can governments reduce inequality?

  By using progressive taxes and government spending.
• What are progressive taxes?

  Taxes that take more income from the rich and less from the poor.
• How is income tax structured in the UK?

  Income tax is progressive in the UK.
• How can government spending on welfare payments help reduce inequality?


  It can help reduce the inequality between the richest and poorest individuals.
• What is an example of a welfare payment?

  Job Seeker’s Allowance, which supports the unemployed while they look for a job.
• What is the purpose of Job Seeker’s Allowance?

  To help support unemployed individuals while they are looking for a job.
• What are the key differences between income and wealth?

  • Income: Flow of money (e.g., from jobs, interest, rents, dividends)
  • Wealth: Stock of assets (e.g., shares, property)
• What are the implications of an unequal distribution of income and wealth in a market economy?

  • Leads to negative externalities (e.g., social unrest)
  • Causes misallocation of resources
  • Results in market failure
  • Some consumers may be unable to purchase goods and services

  
• How do progressive taxes and government spending work together to reduce inequality?

  • Progressive taxes: Higher rates for the wealthy, lower for the poor
  • Government spending: Welfare payments support low-income individuals
  • Together, they help balance income distribution