9708 · 3.3
Addressing income and wealth inequality flashcards
Revision flashcards for Cambridge 9708 Addressing income and wealth inequality (syllabus 3.3). Flip, recall, then mark a real past-paper question.
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Difference between income and wealth?
Income is a flow of earnings over time; wealth is a stock of assets at a point in time (property, savings, shares).
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What is a progressive tax?
Average tax rate rises as income rises — higher earners pay a larger proportion of income in tax.
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What is a regressive tax?
Average tax rate falls as income rises — e.g. flat-rate VAT hits low earners harder as a % of income.
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What are transfer payments?
Government payments to individuals with no goods/services in return — benefits, pensions, unemployment support.
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What does the Gini coefficient measure?
Income or wealth inequality — 0 = perfect equality, 1 = maximum inequality.
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Trade-off of a higher minimum wage?
May reduce income inequality for those in work but could cause unemployment if wage exceeds labour market equilibrium.
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What is a progressive tax?
A tax system where the marginal rate of taxation increases as a person's income increases. This results in the average rate of tax also rising with income, meaning higher earners pay a larger percentage of their income in tax.
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What are transfer payments?
Payments made by the government to individuals, for which no goods or services are exchanged. Examples include unemployment benefits, state pensions, and housing benefits. They are a primary tool for redistributing income.
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What is the Gini coefficient?
A statistical measure of income or wealth distribution, ranging from 0 (perfect equality) to 1 (perfect inequality). It is calculated from the Lorenz curve as the ratio of the area between the line of equality and the Lorenz curve to the total area under the line of equality.
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What is the Lorenz Curve?
A graphical representation of income or wealth distribution. It plots the cumulative percentage of total income received against the cumulative percentage of the population, starting from the poorest. The further the curve is from the 45-degree line of perfect equality, the greater the inequality.
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What is the 'poverty trap'?
A situation where a person has little or no incentive to earn more income because they would lose their means-tested state benefits and pay more tax, potentially leading to them being worse off. This creates a disincentive to work or seek higher-paid employment.