All Flashcards
How does inheritance contribute to wealth inequality?
Inheritance allows wealth to be passed down through generations, concentrating assets among certain families and exacerbating existing inequalities.
How does discrimination affect income inequality?
Discrimination limits opportunities for certain groups, leading to lower wages and reduced access to education and jobs, thus increasing income inequality.
How does limited access to financial markets affect wealth inequality?
It prevents lower-income individuals from growing their wealth through investments, savings, and loans, widening the gap between the rich and the poor.
How does a progressive tax system affect income distribution?
By taxing higher incomes at a higher rate and redistributing that revenue, progressive taxes can reduce income inequality and provide resources for social programs.
How does a sales tax act as a regressive tax?
Sales tax takes a larger percentage of income from lower-income groups because they spend a larger portion of their income on taxable goods.
How can government transfer payments reduce income inequality?
Transfer payments like welfare provide income support to low-income individuals and families, increasing their disposable income and reducing the income gap.
Explain how differences in human capital contribute to income inequality.
Individuals with higher levels of education, skills, and experience (human capital) tend to be more productive and earn higher wages, leading to income disparities.
How does bargaining power affect income inequality?
Workers with strong bargaining power (e.g., through unions) can negotiate for higher wages and better benefits, while those with less power may face lower pay and poorer working conditions, contributing to income inequality.
How can unequal access to education contribute to income inequality?
Limited access to quality education restricts opportunities for skill development and upward mobility, perpetuating income disparities between those with and without educational advantages.
How does social capital affect income inequality?
Those with strong social networks have better access to jobs and opportunities, increasing their income potential, while those lacking such networks may face barriers to advancement, exacerbating income inequality.
On a Lorenz curve, what does a curve closer to the line of perfect equality indicate?
A more equal distribution of income.
On a Lorenz curve, what does a curve further away from the line of perfect equality indicate?
A less equal distribution of income.
How does a progressive tax system shift the Lorenz Curve?
It shifts the Lorenz Curve closer to the line of perfect equality.
How does a regressive tax system shift the Lorenz Curve?
It shifts the Lorenz Curve further away from the line of perfect equality.
If Area A (area between the line of perfect equality and the Lorenz curve) increases, what happens to the Gini coefficient?
The Gini Coefficient increases, indicating greater income inequality.
If the Lorenz curve perfectly overlaps the line of perfect equality, what is the Gini coefficient?
The Gini coefficient is 0.
What does the x-axis of the Lorenz Curve represent?
Cumulative percentage of the population.
What does the y-axis of the Lorenz Curve represent?
Cumulative percentage of income.
How would a significant increase in inheritance taxes affect the Lorenz curve?
The Lorenz curve would likely shift closer to the line of perfect equality, as wealth is redistributed.
How would a decrease in social mobility affect the Lorenz curve?
The Lorenz curve would likely shift further away from the line of perfect equality, as income becomes more concentrated.
What is Income Inequality?
How annual earnings are distributed among a population.
What is Wealth Inequality?
How assets are distributed among a population.
What is the Lorenz Curve?
A visual representation of income inequality, plotting cumulative income percentage against cumulative population percentage.
What is the Gini Coefficient?
A numerical measure of income inequality, ranging from 0 (perfect equality) to 1 (perfect inequality).
What is a Progressive Tax?
A tax that takes a larger percentage of income from high-income groups.
What is a Regressive Tax?
A tax that takes a larger percentage of income from low-income groups.
What is a Proportional Tax?
A tax that takes the same percentage of income from all income groups.
Define Transfer Payments.
Government payments to individuals or businesses designed to meet a specific objective rather than pay for goods or resources.
What is 'perfect equality' in the context of the Lorenz curve?
A state where everyone has the same income, represented by a straight diagonal line on the Lorenz curve.
What does a Gini Coefficient of 0 indicate?
Perfect income equality.