Chapter 8: Distribution Overview Income Distribution & Wages and Salaries Income Inequality Interest Income, Savings, Rental Income & profit Circular.
Post on 01-Jan-2016
230 Views
Preview:
Transcript
Chapter 8:Chapter 8:Chapter 8:Chapter 8:
DistributionDistribution
Overview• Income Distribution & Wages and Salaries• Income Inequality• Interest Income, Savings, Rental Income & profit• Circular Flow & Gross Domestic Product• Causes of Income Inequality• Government Programs to Reduce Poverty• Who Is Poor?• Regional Income Inequality
Income Distribution• Three basic economic questions are: “What to
produce?” “ How to produce it?” & “For whom to produce?”
• Supply and demand will answer this question in the productive resources market in the form of wages, rent, interest and profit.
Wages & Salaries• Increases in demand and decreases in supply
cause wages to be higher whereas decreases in demand and increases in supply cause wages to be lower
Demand, Supply & Wages of Plumbers in a Canadian City (fig.8.2/8.3) p. 160
D2
Shortage
Number of PlumbersNumber of Plumbers
(wag
es p
er h
our
(dol
lars
)
30
10
20
400200 300 500 600100
25
A decrease in the demand for plumbers
D2
Surplus
Number of PlumbersNumber of Plumbers
(wag
es p
er h
our
(dol
lars
)
30
10
20
400200 300 500 600100
25
15
S2
A Decrease in the Supply of PlumbersA Decrease in the Supply of Plumbers
Shortage
Number of PlumbersNumber of Plumbers
(Wag
es p
er h
our
($)
30
10
20
400200 300 500 600100
25
15
S2
An increase in the Supply of PlumbersAn increase in the Supply of Plumbers
Surplus
Number of PlumbersNumber of Plumbers
(Wag
es p
er h
our
($)
30
10
20
400200 300 500 600100
25
15
Factors Affecting Wages & Salaries
• Government regulations – minimum wage and fringe benefits
• Labour unions• Large employers• Mobility of workers• Barriers to entry – specialized
training, discrimination
Interest Income• Price paid to a lender for the use
of a sum of money over a period of time
Savings• Part of income that is not spent on
goods and services
Rental Income• Payment for the use of a resource,
specifically land
Income from Profits• What is left over after all the costs have
been paid for from the revenue earned by the business (i.e. Total Revenue – Total Costs)
• Reward to the entrepreneur for taking the risk of starting a business
• Prime motivator to start a business and run it well to satisfy the wants and needs of consumers
Circular Flow
Gross Domestic Product (GDP)
• The total value at market prices of all final goods and services produced in Canada over a period of time (usually a year)
• Expenditure approach = Consumption + Investment + Government + (Exports – Imports) or C + I + G + (X - M)
• Income approach = wages + rent + interest + profit – (depreciation + indirect taxes)
Income Inequality• Lorenz Curve is a graph that helps
illustrate the income inequality in a society by contrasting perfect equality with reality within a given economy
Causes of Income Inequality
• Natural ability• Education, training and
opportunity• Property ownership• Ability to influence
wages and salaries – labour unions and professional associations
• Discrimination – women and minorities
• Poor health or physical disability
• Region or residence – Ontario higher incomes than Newfoundland
• Luck – lottery, accident• Weeks worked• Age
Government Programs to Reduce Poverty
• Investment in human capital (i.e. education and skill training)
• Keep economy operating at a high level to provide jobs
• Safety programs to protect workers and universal health care
• Old age security pension, unemployment insurance, welfare, C.A.P.
Who is Poor?• $15, 067 (in 1992) for a family of four in a mid-
sized Canadian city according to Professor Sarlo
• House of Commons Conservative sub-committee menu of basic needs with differences in cost of living from location to location taken into consideration
• Statistics Canada Low Income Cut-Off (L.I.C.O.) spend 70% or more on three essentials (food, clothing, shelter)
• 12% of families and 30% of unattached individuals below the L.I.C.O. line
Regional Income Inequality
• Ontario, Alberta and British Columbia wealthier
• Maritimes and Quebec poorer
top related