Edexcel A-Level Economics A (9EC0) · Theme 4
Specification points
- Absolute and relative poverty.
- The causes of, and measures of, inequality (the Lorenz curve and Gini coefficient).
- The distinction between wealth and income inequality.
- The impact of, and policies to reduce, inequality.
Poverty
- Absolute poverty — income below a level needed for basic necessities.
- Relative poverty — income below a proportion (e.g. 60%) of the median in a society; linked to inequality.
Measuring inequality
Income and wealth inequality differ — wealth (a stock of assets) is usually far more unequal than income (a flow).
- The Lorenz curve plots cumulative income share against cumulative population share; the further it bows from the 45° line of equality, the greater the inequality.
- The Gini coefficient summarises this as a number from 0 (perfect equality) to 1 (maximum inequality).
Key definitions
| Term | Definition |
|---|---|
| Lorenz curve | A graph of cumulative income share against cumulative population share. |
| Gini coefficient | A measure of inequality from 0 (equal) to 1 (unequal). |
| Progressive tax | A tax taking a larger percentage of higher incomes. |
Causes of inequality
Unequal wages, ownership of wealth, inheritance, unequal access to education and health, discrimination, and differences between countries in development.
Impact and policies
Some inequality can reward effort and enterprise (incentives), but high inequality can reduce social mobility, cohesion and even growth. Policies to reduce it include:
- Progressive taxation and transfer payments (benefits, pensions).
- State provision of education and healthcare to widen opportunity.
- Minimum wage and labour-market policy.
The equity-efficiency trade-off is central: heavy redistribution may weaken work and investment incentives.
Worked example
A country's Gini coefficient rises from 0.30 to 0.38 over a decade, and its Lorenz curve bows further from the line of equality — income inequality has increased. A more progressive tax funding free education could reduce it and improve opportunity, but very high top tax rates might discourage effort or drive avoidance.
Common exam mistakes
- Confusing income and wealth inequality.
- Misreading the Lorenz curve/Gini direction.
- Treating all inequality as harmful.
Exam technique
Use the Lorenz curve and Gini to describe inequality precisely, then evaluate redistribution using the equity-efficiency trade-off and incentive effects.
Quick revision
- Absolute vs relative poverty.
- Lorenz curve + Gini (0 equal → 1 unequal); wealth more unequal than income.
- Policies: progressive tax, transfers, provision — mind incentives.