Question 1
Inequality in an economy can be categorised as either income inequality or wealth inequality.
What is most likely to cause greater wealth inequality than income inequality?
Answer: B.
Wealth is a stock of assets; income is a flow of earnings. Property is a major component of wealth and its ownership is far more concentrated than earnings are. When property values rise, the gains accrue entirely to those who already own property, and non-owners gain nothing, the wealth gap widens sharply. Their current incomes, meanwhile, are largely unchanged, because a higher house price does not itself pay a salary. So the effect on wealth inequality far exceeds the effect on income inequality.
Why the other options are wrong:
- A, an increase in indirect taxation, is regressive and so worsens inequality of real income: those on low incomes spend a larger share of income on taxed goods. It does not directly change asset holdings.
- C, a lower minimum wage, cuts the earnings of the lowest-paid. That is squarely an income effect.
- D, lower interest on savings, reduces investment income. Note the trap: savings are wealth, so this option looks wealth-related, but what falls is the return flowing from the asset, not the value of the asset itself, the balance in the account is unchanged.
What this practice covers
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. Each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way. No account needed to answer them.
These questions are drawn from past CIE 9708 papers. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on addressing income and wealth inequality, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Income is not a stock; it must have a time period.
- Wealth is not simply high income.
- Wealth should normally be measured net of liabilities when net wealth is
- A higher Gini means greater inequality, not greater equality.
- The syllabus does not require calculation of the Gini coefficient.
- An income Gini does not measure wealth inequality.
- Inequality is not identical to poverty.
- A minimum wage helps only workers whose employment and hours are maintained.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Addressing Income and Wealth Inequality revision notes.