A-Level Economics: Inequality and Poverty

How income and wealth are shared out is one of the macroeconomic indicators the A level subject content asks you to understand, and it is a regular theme of data-response questions, which often give a table of quintile shares or a pair of Gini coefficients and ask you to interpret them. This material trains the measurement, the causes and the policy debate.

It begins with the basic distinction between income, a flow received over time, and wealth, a stock of assets, and explains why wealth is distributed far more unequally. You then work with the tools of measurement. From quintile shares of 5%, 10%, 15%, 25% and 45% you build the cumulative points of a Lorenz curve and compare the richest and poorest fifths; from the areas on a Lorenz diagram you work out a Gini coefficient of 0.38; and you interpret what two countries' Gini coefficients do and do not tell you, since a Gini figure says nothing about average living standards or about fairness.

Poverty is treated the same way. You distinguish absolute from relative poverty, calculate a relative poverty line as 60% of median household income, and explain why the median rather than the mean is used when a few very high incomes skew the distribution.

The causes of inequality (differences in human capital, inherited wealth, bargaining power, discrimination and unemployment) lead into the policy debate. You assess progressive income tax, means-tested and universal benefits, the national minimum wage and education, and meet the main trade-off in a worked example: a worker who keeps only £32.40 of an extra £100 once tax, National Insurance and benefit withdrawal are taken into account, which is the poverty trap. The material also covers the Kuznets curve and the arguments that inequality can support incentives or damage growth, and it keeps the positive question of how unequal a country is separate from the normative question of how unequal it should be.

The material offers a 12-question quiz with explanations, a flashcard deck of key definitions, a printable written sheet of eight questions with model answers (including a Lorenz curve construction and an evaluation of redistribution), and an oral exam in which an examiner asks you about measurement, causes and policy one question at a time. AQA covers this topic under the distribution of income and wealth; Pearson Edexcel covers poverty and inequality in Theme 4.

• Distinguish income from wealth and equality from equity
• Construct Lorenz curve points from quintile data and interpret a Gini coefficient
• Distinguish absolute from relative poverty and calculate a relative poverty line from the median
• Explain the causes of income and wealth inequality
• Evaluate redistribution policies, including the poverty trap and the incentive trade-off

Practice material written by Zestly, based on the DfE GCE A level economics subject content (2014), 'income distribution and welfare', with examples drawn from the AQA (distribution of income and wealth; poverty) and Pearson Edexcel (Theme 4, poverty and inequality) specifications. All figures in the questions are invented for practice.