Study Notes
Equity and redistribution of income and wealth involve understanding the fair distribution of resources and the policies that aim to achieve this. It distinguishes between equity and equality, and examines poverty and government interventions to address these issues.
- Equity — Fair distribution of resources in society. Example: Horizontal equity ensures equal treatment for those with the same circumstances.
- Equality — Treating everyone the same way. Example: Providing the same level of education to all students.
- Efficiency — Maximizing output with scarce resources. Example: Producing goods at the lowest cost while meeting consumer preferences.
- Absolute Poverty — A fixed, minimal standard of living necessary for survival. Example: Living on less than $1.90 per day.
- Relative Poverty — Economic status compared to the broader society. Example: Earning less than 60% of the median income in a country.
- Means-tested benefits — Benefits targeted at low-income individuals or families. Example: Income support.
- Universal benefits — Benefits provided to everyone in specific categories. Example: Universal state pensions.
- Universal basic income — Unconditional cash payment by the government. Example: Implemented in countries like Finland and Kenya.
- Negative income tax — A system where individuals receive a benefit if their tax is less than a fixed amount. Example: Proposed but not widely implemented.
Exam Tips
Key Definitions to Remember
- Equity
- Equality
- Efficiency
- Absolute Poverty
- Relative Poverty
- Means-tested benefits
- Universal benefits
- Universal basic income
- Negative income tax
Common Confusions
- Confusing equity with equality
- Misunderstanding the difference between absolute and relative poverty
Typical Exam Questions
- When does a society believe that the distribution of income is fair? Answer: When the distribution of income is equitable.
- Which of the following changes in taxation is likely to reduce inequality in the distribution of income? Answer: Progressive taxation.
- Which of these combinations best describes the objectives of a negative income tax policy? Answer: To provide a safety net while encouraging work.
- A government is implementing a policy to redistribute income from the richest to the poorest families in the economy. Which combination of government interventions is most likely to achieve this objective? Answer: Progressive taxation and targeted welfare programs.
What Examiners Usually Test
- Understanding of the differences between equity and equality
- Ability to analyze the impact of different policies on income distribution
- Knowledge of poverty definitions and their implications