<< Chapter < Page Chapter >> Page >
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 the best definition of economic?
Humble Reply
what is aggregat demand in open economy
Dagim Reply
Aggregate demand is expressed as the total amount of money exchanged for those goods and services at a specific price level and point in time.
What is the full meaning of GDP
Akinbulejo Reply
gross domestic product
Gross Domestic Product
Formula for calculating the percentage of change in price, quantity, price elasticity of demand
Augustina Reply
Given that the elasticity of supply for a good is 2 and the percentage change in price is 45%.What is the percentage change in quantity supplied
Mbe Reply
Please don't understand
percentage change should be 44%
state and explainfour function of a costumer service
Egba Reply
the circular flow model of the economy is a simplification showing how the economy works and the relationship between income,production and spending in the economy as a whole
Anna Reply
It is an idea that show us the way the economy works about their income, production, and spending in the economy
what is circular flow
Ntokozo Reply
what is economics?
Dorcas Reply
Economics is defined as the science that study human behaviour as a relationship between ends and scarce means which have alternative uses.
economics is a social science concerned with the production,distribution, and consumption of goods and services
Economics as a science studies human behaviour as a relationship between ends and scarce means with alternative use.
economics can be defined as social science which studies human behavior as a relationship between ends and scare means which have alternative uses.... Lionel C Robins
in 2021 Amazon reduced the annual subscription fee for its prime membership service which provides free two_day shipping on many goods and other benefits, from $119 to $99. Zoppa consulting, an investment firm estimated that before the price reduction, prime had 62million subscribers globally. If so, what is the arc elasticity of demand for a prime membership.
Joan Reply
Differences between microeconomics and macroeconomics
tatiana Reply
Macroeconomics deal with the economy as a whole.that is an economy affect the firm ,government and the households eg.unemployment, whilst Microeconomics deal with the the decision making of households,firm and government separately.
Microeconomics is the branch of economic which studies the behaviour of individual households, firms and industries whiles macroeconomic studies the economy as a whole. It looks at the economy from a a broader perspective.
what is Economics
Ebem Reply
the branch of knowledge concerned with the production, consumption, and transfer of wealth and has Influence by sociology!!!!
Economics is the study of how humans make decisions when they want to fulfil their requirements and desires for goods, services and resources.
Economics is the study how humans make decisions in the faces of scarcity.
economic is the study of how human make decision in the fact of scarcity.
Economics is a social science which study human behavior as a relationship between earn and scarce mean which have alternative uses
what is market structure
market structure in economics depicts how firms are differentiated and categorised based on types of goods they sell and how their operations are affected by external factors and elements.
what is economic theory
what is demand
Gooluck Reply
demand is the willingness to purchase something
demand is the potential ability or williness to purchases something at a particular price at a given period of time..
Demand refers to as quantities of a goods and services in which consumers are willing and able to purchase at a given period of time. Demand can also be defined as the desire backed by ability to purchase .
what is demand
John Reply
is the production of goods in scarcity
Demand refers to as quantities of a goods and services in which consumers are willing and able to purchase at a given period of time.
Demand refers to the quantity of goods and services that a consumer is willing and able to buy at a given price over a period of time
Do high interest rate in a country increase investment
Government sector is the place they can gain more investment but the economy as a whole investment decrease
what is demand of supply
music Reply
Please is it demand and supply or what
what is globalization
Nuertey Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now

Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?