Chapter 8 Distribution Overview Income Distribution Wages and
Chapter 8: Distribution
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 decreases in supply cause wages to be higher whereas decreases in demand increases in supply cause wages to be lower
(wages per hour (dollars) Demand, Supply & Wages of Plumbers in a Canadian City (fig. 8. 2/8. 3) p. 160 30 25 20 D 2 Shortage 10 100 200 300 400 500 Number of Plumbers 600
(wages per hour (dollars) A decrease in the demand for plumbers 30 Surplus 25 20 15 10 D 2 100 200 300 400 500 Number of Plumbers 600
A Decrease in the Supply of Plumbers S 2 (Wages per hour ($) 30 25 20 15 Shortage 10 100 200 300 400 500 Number of Plumbers 600
An increase in the Supply of Plumbers Surplus (Wages per hour ($) 30 25 20 15 10 100 200 300 400 500 Number of Plumbers 600 S 2
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 midsized 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
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