Photo AI
UK Government spending and inequality (a) 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
UK Government spending and inequality (a) Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient. Refer to Extract A in ... show full transcript
Worked Solution & Example Answer:UK Government spending and inequality (a) 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
To measure income inequality, the Gini coefficient is employed, which is derived from the Lorenz curve. The Lorenz curve plots the cumulative percentage of total income against the cumulative percentage of the population.
A perfectly equal income distribution would yield a 45-degree line, whereas actual distributions lie below this line. The Gini coefficient is calculated as the area between the Lorenz curve and the line of equality, divided by the total area under the line of equality:
Where A is the area between the line of equality and the Lorenz curve, and B is the area under the Lorenz curve. A Gini coefficient of 0 represents perfect equality, while a coefficient of 1 indicates maximum inequality.
Step 2
With reference to Figure 1 and Extract A, examine two likely causes of income inequality within the UK.
Answer
One cause of income inequality in the UK is educational disparity. According to Extract A, areas with limited access to higher education tend to have lower overall incomes, contributing to a skill gap where individuals lack the necessary qualifications for higher-paying jobs.
Another cause is regional economic variation. Figure 1 indicates that certain regions, like London, have significantly higher disposable income per capita compared to areas in the North East. This regional disparity is a result of uneven investment in infrastructure and job creation, as noted in Extract A.
Step 3
With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK.
Answer
Figure 2 shows subjective happiness ratings based on income brackets. While there is a slight upward trend — where higher incomes generally correlate with higher happiness scores — the differences are relatively small. For instance, those earning between £20,000 and £40,000 report an average score of 7.13, only slightly higher than those in the £10,000 to £20,000 range, who score 7.02. This suggests that, although higher income may confer some benefits in terms of happiness, it is not a guaranteed or significant increase. Other factors, such as job satisfaction and social relationships, may play a substantial role in determining overall happiness.
Step 4
With reference to Extract C and your own knowledge, discuss methods for raising additional tax revenue in the future.
Answer
One method the UK government can consider is increasing property-related taxes, such as council tax or property taxes based on more current market valuations. This approach can mitigate budget shortfalls and promote equitable taxation.
Additionally, enhancing corporate taxes on large firms and reducing loopholes could yield substantial additional revenue. According to Extract C, a gradual increment on corporation tax could align with other G7 nations and generate funding for public services. Implementing these can create a more balanced tax system while addressing funding needs for essential services.
Step 5
Referencing Extract D, discuss the benefits of an increase in infrastructure spending on the UK economy.
Answer
Increased infrastructure spending can stimulate economic growth by enhancing productivity and creating jobs. As mentioned in Extract D, investing in projects like road improvements or public transport can reduce travel times and enhance efficiency for businesses. Moreover, better infrastructure translates to improved access to services and amenities for the population, encouraging regional development. Aggregate demand can increase as workforces gain higher mobility, leading to greater consumption and investment across the economy, thus boosting overall economic resilience and growth.