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Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 2
Question 6
Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient. Refer to Extract A in your answer. With reference to Figure 1 an... show full transcript
Worked Solution & Example Answer:Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 2
Step 1
Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient.
Answer
The Gini coefficient is a numerical measure of income inequality, calculated based on the Lorenz curve. To illustrate this, we can plot the cumulative percentage of the population on the x-axis against the cumulative percentage of income received on the y-axis.
The Lorenz curve visually represents income distribution within a society. If income were perfectly distributed, the curve would coincide with the 45-degree line. However, in reality, the Lorenz curve lies below this line, indicating that the distribution of income is unequal.
The Gini coefficient is derived from the area between the Lorenz curve and the line of perfect equality. It ranges from 0 (indicating perfect equality) to 1 (indicating maximal inequality). A higher Gini coefficient value signifies greater inequality.
Step 2
With reference to Figure 1 and Extract A, examine two likely causes of income inequality within the UK.
Answer
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Education Disparities: According to Extract A, educational attainment significantly influences income levels. Areas with a higher concentration of higher education institutions tend to offer greater job opportunities and higher wages. For instance, the South East and London exhibit higher median incomes compared to the North East, where fewer individuals possess higher qualifications.
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Skill Distribution in the Workforce: The extract also highlights that labour markets in the UK vary greatly. In London, for instance, a skilled workforce commands higher salaries due to demand. In contrast, the North has fewer job opportunities, which results in lower income levels for less skilled workers. This inequality in skill distribution leads to stark contrasts in income across regions.
Step 3
With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK.
Answer
Figure 2 presents data indicating that subjective happiness levels vary across income brackets. Although there is a general trend showing a slight increase in happiness with rising income, the differences are marginal. For instance, those earning between £20,000 and £40,000 report a happiness score of 7.13, while those earning over £40,000 only report a score of 7.29.
This suggests that while higher real income may contribute to a sense of financial security and well-being, it does not necessarily correlate strongly with increased happiness. Factors such as mental health, community relationships, and work-life balance may play more significant roles in determining overall happiness than income alone.
Step 4
With reference to Extract C and your own knowledge, discuss methods that the government could use to increase tax revenue.
Answer
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Increasing Income Tax Rates: The government could raise income tax rates for higher earners. By adjusting the progressive tax structure, the government can generate substantial additional revenue, especially during periods of economic growth.
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Expanding the Tax Base: The government can broaden the tax base by reducing tax evasion and avoidance. Implementing stricter regulations and incentivizing compliance can help ensure that individuals and businesses pay their fair share of taxes.
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Introducing New Taxes: New taxes, such as a wealth tax or digital services tax, could be introduced, targeting wealthier individuals or rapidly growing sectors.
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Enhancing Compliance and Enforcement: Increasing funding for tax enforcement agencies and improving technology for tracking tax compliance can lead to greater collection efficiency.
Step 5
In relation to Extract B, discuss the benefits of an increase in infrastructure spending on the UK economy.
Answer
Infrastructure spending has a multifaceted impact on economic growth. An increase in government investment can lead to the following benefits:
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Job Creation: Infrastructure projects often require a substantial workforce, thus creating jobs in both the short and long term. This can help reduce unemployment and stimulate local economies.
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Improved Productivity: Upgrading transportation networks, such as roads and rail, enhances connectivity, reducing travel times and costs for businesses. Improved productivity can enhance competitiveness, attracting foreign investment.
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Long-term Economic Growth: Investments in infrastructure can lay the foundation for sustained economic growth. Well-planned infrastructure investments can lead to efficient resource allocation and enhanced services, benefiting the economy as a whole.
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Regional Development: Focusing on infrastructure in underdeveloped areas, as mentioned in Extract B, can help reduce regional disparities by stimulating local economies and encouraging business development in those areas.