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By the end of this section, you will be able to:
  • Explain the arguments for and against government intervention in a market economy
  • Identify beneficial ways to reduce the economic inequality in a society
  • Show the tradeoff between incentives and income equality

No society should expect or desire complete equality of income at a given point in time, for a number of reasons. First, most workers receive relatively low earnings in their first few jobs, higher earnings as they reach middle age, and then lower earnings after retirement. Thus, a society with people of varying ages will have a certain amount of income inequality. Second, people’s preferences and desires differ. Some are willing to work long hours to have income for large houses, fast cars and computers, luxury vacations, and the ability to support children and grandchildren.

These factors all imply that a snapshot of inequality in a given year does not provide an accurate picture of how people’s incomes rise and fall over time. Even if some degree of economic inequality is expected at any point in time, how much inequality should there be? There is also the difference between income and wealth, as the following Clear It Up feature explains.

How do you measure wealth versus income inequality?

Income is a flow of money received, often measured on a monthly or an annual basis; wealth    is the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home. In calculating wealth all debts must be subtracted, such as debt owed on a home mortgage and on credit cards. A retired person, for example, may have relatively little income in a given year, other than a pension or Social Security. However, if that person has saved and invested over time, the person’s accumulated wealth can be quite substantial.

In the United States, the wealth distribution is more unequal than the income distribution, because differences in income can accumulate over time to make even larger differences in wealth. However, the degree of inequality in the wealth distribution can be measured with the same tools we use to measure the inequality in the income distribution, like quintile measurements. Data on wealth are collected once every three years in the Survey of Consumer Finance.

Even if they cannot answer the question of how much inequality is too much, economists can still play an important role in spelling out policy options and tradeoffs. If a society decides to reduce the level of economic inequality, it has three main sets of tools: redistribution from those with high incomes to those with low incomes; trying to assure that a ladder of opportunity is widely available; and a tax on inheritance.


Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. Earlier in this chapter, we considered some of the key government policies that provide support for the poor: the welfare program TANF, the earned income tax credit, SNAP, and Medicaid. If a reduction in inequality is desired, these programs could receive additional funding.

Questions & Answers

what is indifference curve
egbebiyi Reply
what is utility
Labiba Reply
utility is the satisfaction derived from consuming a particular product.
utility is the satisfaction a consumer derives from consuming a particular good
you are right
nice one chi
you are right
thank you 🙏
you are right
Demand refers to the various quantities of a commodity a consumer is willing and able to purchase at particular price with a period of time.
Clifford Reply
Demand is refer to as the quantity of goods and services which a consumer is willing and able to buy at a particular point in time and at a given price.
What is demand
Magdalene Reply
What is divided
Alfusainey Reply
It help us to no how to do with our money
Demand curve us a graph showing the relationship between the price and quantity of a commoditiy demand
Demand schedule is define as a table showing the relationship between prices and the quantity of that commoditiy demanded
Demand may be defined as a quantity of good or services that consumers are walling and able to buy at a alternative prices
The law of demand states that all things being equal the higher the price the lower the quantity that will be demanded vice versa
The law of supply states that all things being equal the higher the price the higher the quantity of a commoditiy that will be supplied vice versa
what is money
Siaw Reply
money is defined as the medium of exchange
money is anything that serves as a medium of exchange,measure of value and standard for deferred payment
money is legal tender that is use for buying good n service
Money is anything that has general acceptability as a medium of exchanging dabt
Money is a legally or socially binding conceptual contract of entitlement to wealth, void of intrinsic value, payable for all debts and taxes, regulated in supply.
money is accepted material for buying and selling and also for payment of dept
what is economics
reekado Reply
what is the meaning of term depreciation
I don't know tell me pls
decrease in the valaue of currency is called depreciation.
managing the scarce resources is called economics 😉
definition of economics according to different scholars
Onesmo Reply
Economics is a science that studies human behavior as a relationship between end and scarce means which have alternative uses:by Davern spot
am I correct?
Yeah you tried
reason why we study economics
Moruf Reply
what is economics
Tutu Reply
economics is defined as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
social science
Economics is a social science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.
Yh ar right
what is a gross domestic product
Amogelang Reply
Explain what is a production possibility curve
Sharon Reply
A curve that indicates the various production possibilities of two commodities when resources are fixed...
what is market?
Jasmin Reply
ware the Byers and seller's that please is called market
a place where buyers and sellers meet
I don't like this market definition.
market is any arrangement whereby buyers and sellers are brought together for the purpose of transacting business. It could be a geographical location or any other means such as internet, mobile phone etc. as long as buyers and sellers are brought together for the purpose of exchange.
A market is a place where buyers and sellers buy and sell goods through bargaining.
yes ,you are correct Agusimba sir.
exception of the low of demond
Rohit Reply
short run AC curves?
Jasmin Reply
you mean shirt run cost curves?
A short-run cost curve shows the minimum cost impact of output changes for a specific plant size and in a given operating environment. Such curves reflect the optimal or least-cost input combination for producing output under fixed circumstances.

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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