8.1.2

Inequality

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Income vs Wealth

Income is the flow of money received, and wealth is the sum of the value of all assets.

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What is income?

  • Income is a flow of money, often measured on a monthly or annual basis.
Illustrative background for What is wealth?Illustrative background for What is wealth? ?? "content

What is wealth?

  • Wealth is the sum of all assets, including pensions, money in the bank, financial investments, and the value of a home.
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Factors influencing distribution of income/wealth

  • Taxation policy: regressive policies will tend to increase the income and wealth gap between different groups in a country. Progressive taxation policies will reduce the gap.
  • The differences in wage between low and high skilled labour.
  • The level of discrimination against different groups of workers.
  • Regional differences in earnings.
  • Unsalaried individuals depending on state benefits.

Inequality of Wealth and Income

In a market economy, the spread of wealth is usually more unevenly distributed than the spread of incomes.

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Income inequality

  • Incomes are the payments for factors of production. For most people, their wages are their primary incomes.
  • In a market economy, different people get different wages based on the jobs they have. Each person then spends money on the basic costs of survival (needs, the cost of which are the same for each person) and then spends a proportion of what is left on wants.
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Wealth inequality

  • The money that a person does not spend is saved and accrues as wealth.
  • Over time the person on the higher income gains wealth quickly compared to the middle income, with the low-income person acquiring very little wealth at all.
  • In the UK, wealth is distributed more unequally than income. This is because differences in income can compound over years and over generations if wealth is passed on through families.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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