2.8 Equity in the distribution of income
By the end of this unit you should be able to:
- Explain the difference between equity in the distribution of income and equality in the distribution of income.
- Explain that due to unequal ownership of factors of production, the market system may not result in an equitable distribution of income.
- Analyse data on relative income shares of given percentages of the population, including deciles and quintiles.
- Draw a Lorenz curve and explain its significance.
- Explain how the Gini coefficient is derived and interpreted.
- Distinguish between absolute poverty and relative poverty.
- Explain possible causes of poverty, including low incomes, unemployment and lack of human capital.
- Explain possible consequences of poverty, including low living standards, and lack of access to health care and education.
- Distinguish between direct and indirect taxes, providing examples of each, and explain that direct taxes may be used as a mechanism to redistribute income.
- Distinguish between progressive, regressive and proportional taxation, providing examples of each.
- Explain that governments undertake expenditures to provide directly, or to subsidize, a variety of socially desirable goods and services (including health care services, education, and infrastructure that includes sanitation and clean water supplies), thereby making them available to those on low incomes.
- Explain the term transfer payments, and provide examples, including old age pensions, unemployment benefits and child allowances.
- Evaluate government policies to promote equity (taxation, government expenditure and transfer payments) in terms of their potential positive or negative effects on efficiency in the allocation of resources.