All Flashcards
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.
What are the key differences between income and wealth inequality?
Income inequality refers to the distribution of earnings, while wealth inequality refers to the distribution of assets.
Differentiate between progressive and regressive taxes.
Progressive taxes take a larger percentage from high-income earners, while regressive taxes take a larger percentage from low-income earners.
What is the difference between a proportional tax and a flat tax?
They are the same; both take the same percentage of income from all income groups.
How do progressive taxes differ from proportional taxes in their impact on income distribution?
Progressive taxes reduce income inequality by redistributing income, while proportional taxes maintain the existing income distribution.
Compare and contrast the Lorenz curve and the Gini coefficient.
The Lorenz curve is a graphical representation of income distribution, while the Gini coefficient is a numerical measure derived from the Lorenz curve that quantifies income inequality.
What are the key differences between equality of opportunity and equality of outcome?
Equality of opportunity ensures everyone has the same chances, while equality of outcome aims for everyone to have the same results, regardless of their starting point.
Differentiate between a flat tax and a regressive tax in terms of their impact on different income groups.
A flat tax takes the same percentage from all, while a regressive tax disproportionately burdens lower-income groups, even if the rate is the same for everyone.
What are the key differences between earned income and unearned income in the context of income inequality?
Earned income is derived from labor, while unearned income comes from investments and assets, often contributing to wealth concentration and inequality.
Compare and contrast the effects of a progressive tax system and a comprehensive social safety net on income inequality.
Progressive taxes redistribute income, while a social safety net provides direct support to low-income individuals, both reducing income inequality through different mechanisms.
Differentiate between the concepts of income mobility and income inequality.
Income mobility refers to the ability of individuals to move up or down the income ladder, while income inequality describes the static distribution of income at a given point in time.
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.