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Distribution of Income and Wealth

Distribution of Income and Wealth. A2 Economics. Aims and Objectives. Aim: Understand the distribution of income in the UK Objectives: Define distribution of income Explain measures of inequality: Lorenz Curve, Gini Coefficient Analyse UK income inequalities

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Distribution of Income and Wealth

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  1. Distribution of Income and Wealth A2 Economics

  2. Aims and Objectives Aim: • Understand the distribution of income in the UK Objectives: • Define distribution of income • Explain measures of inequality: Lorenz Curve, Gini Coefficient • Analyse UK income inequalities • Evaluate methods of government intervention

  3. Starter • Define income • Define equity • Define wealth

  4. UK Income Profile

  5. Distribution of Income Definition: how income is shared out between factors of production • More equal than the distribution of wealth. • Can be measured by factor of production, between households and between regions. • Article

  6. Measuring The Distribution of Income: Lorenz Curve • A method of measuring the degree of inequality in the distribution of income and wealth is the Lorenz Curve.

  7. Measuring The Distribution of Income: Lorenz Curve • Horizontal axis = cumulative % of population • Vertical axis = cumulative % of income earned • 45 degree line = perfect equality i.e. the bottom 40% of population earned 40% of income. • The actual cumulative percentages are then plotted • If inequalities exist this line falls below the 45 degree line. • The greater the inequality the further the curve will be below the 45 degree line. Which country is income distributed more unevenly?

  8. Measuring The Distribution of Income: Gini Coefficient • A statistical measure of the degree of inequality shown on the Lorenz curve is the Gini Coefficient • Ratio of the area between 45 degree line and the Lorenz curve divided by the total area below the 45 degree line. • (a / a + b) • Perfect equality ratio of 0 • Perfect inequality ratio of 1 • Closer it is to 1 the more unequal the distribution of income Trends in UK

  9. The Distribution of Income: Inequalities • Distribution has become more unequal in recent decades. Due to: • Reduction in top rates of income tax • Privatisation lead to rise in executives pay • Real value of benefits such as Job Seekers Allowance fell • % of single parent households not in work doubled between 1975-2000.

  10. The Distribution of Income: Inequalities • Brainstorm in groups what you feel the causes of inequality between household income are.

  11. Causes of Income Inequalities Between Households

  12. Government Intervention • Brainstorm in groups methods of government intervention to influence wealth and income distribution in the UK.

  13. Government Intervention Methods

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