INSTRUCTIONS NOT FOLLOWED:The essay cannot just state relevant legislation and then talk about legislation. It must relate directly to the label that has been given to you already and outline where it does &a does not comply with EU legislation .

Income Distribution

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Income Distribution

Introduction

Income distribution is acknowledged as a terminology used to refer to an aspect of taking the national income and divide it among individual groups, social classes, households or factors of production to ensure that a value is achieved that can be used for comparison purposes (Stockhammer, 2012). In this case, the widely explored aspect of income distribution is the concept of income inequality. In this case, there are a number of reasons as to why income distribution may harm a countries economic performance (Atkinson & Bourguignon, 2014). For instance, at micro-economic level, income distribution and inequality tends to increase the level of ill health spending and in the process, it reduces the educational performance of those individuals that are acknowledged as poor in the society. In so doing, these elements play a very crucial role in the reduction of the economic performance of labor force most especially productivity. Therefore, in order to comprehend the concept of income distribution, it is important to analyze it in terms of the economic issue, its implication to the society and some of the economic principles that are embedded in.

Economic Issue

At the micro-economic level, income distribution and inequality can limit the economic growth and in the process, it can result into extensive levels of instability. Additionally, economic inequality when it comes to micro-economic levels implies that there is unequal access to income and wealth (Atkinson & Bourguignon, 2014). In simple terms, the inequality factor of income distribution revolves around income levels of individuals and the wealth that a country boasts of in terms of resources. In most developed nations, the income distribution inequality is caused by difference of wealth, income, salaries, and capital returns. In essence, the taxation levels and other limiting factors such as pensions and child payments are some of the reasons why income distribution inequality is prevalent in most countries.

Income distribution as far as economic analysis is concerned is explored in two principle ways. Apparently, it is best to analyze the concept of income distribution in terms of the functional income distribution such that the income distribution among factors and the income size distribution among individuals becomes the functioning part of income distribution (Atkinson & Bourguignon, 2014). In this case, functional income distribution is universally acknowledged as an integral part of economic analysis output, relative prices, and employment . In essence, there are several economic theories that have been developed because of the economic stance of inequality in income distribution. However, one sure thing is the fact that all these elements revolve around the use of factors of production such as entrepreneurship, labor, capital and land coupled with their remuneration rates in terms of wages, rent and profit. In other words, the conventional approach of income distribution needed in this perspective is to deal with income distribution questions as part of the neoclassical economics analysis of resource allocation and process (Atkinson & Bourguignon, 2014).

Economic efficiency and income distribution can be said to be the relationship that exists between the resulting output of a service, a good, and the scarce resources input. Additionally, the decreasing levels of economic efficiency assumed to accompany the income inequality reduction is the presumption that in most cases an increment as the inequality in the distribution of income is required to increase (Atkinson & Bourguignon, 2014).

Social Importance

For a given income level, land ownership and education, increased inequality in terms of this attributes will almost declare the fact that there should be higher levels of both relative and absolute deprivation in these dimensions (Peichl, Pestel & Schneider, 2012). In this case, income inequality is the fundamental reason for social inequality. Additionally, it is very important in determining inequality matters that have to do with growth (Atkinson & Bourguignon, 2014). There is growing evidence that those countries that possess higher inequality levels most especially when it comes to realize lower growth in terms of the economy . In fact, a given pattern of growth in the household income has a greater impact when it comes to the reduction of poverty most especially if these incomes are distributed equally.

Income distribution and inequality is important in its own sense since there is growing evidence and widely acknowledged ethical basis for being worried about the question of equality existing between individuals (Atkinson & Bourguignon, 2014). However, the first question which come to most people’s head is the nature of this inequality. Does this inequality present itself in terms of opportunities or income? In this case, the concept of income distribution is very crucial in determining what is reasonable in equality.

Rising income distribution is a global concern since inequality between developing and advanced markets has increased as evidenced by the recent public backing by the president of the United States, Barack Obama. In this case, President Obama recognized the fact that the widening gap in the income distribution inequality is the defining problem that the global world is currently facing. Additionally, income distribution is a very crucial value in the society .In fact, irrespective of religion, ideology, culture, and ideology, individuals care about income distribution in that it affects the degree of inequality.

The concept of income distribution often differentiates between the outcomes of income inequality that are determined by household income, expenditure, wealth and inequality of income opportunities (Atkinson & Bourguignon, 2014). Income distribution occurs because of a combination of differences in individual’s talents, efforts, and income opportunities. On some instances, inequality in income distribution can be assumed necessary evil. Apparently, in some occasions, inequality can offer individuals a platform to invest, excel, save, compete, and invest to develop and move ahead in their life (Miyazawa, 2012). For instance, some elements caused by inequality in income distribution can lead to economic growth and in the process, spur human capital despite the fact that they are associated with higher levels of inequality in income distribution. Some of these elements are returns in education coupled with differentiation in labor and workforce

Income distribution inequality can as well influence the economic growth in a positive manner by offering entrepreneurship incentives that are important for a countries development. They realize this objective by allowing a few economic individuals to be in possession of the minimum amount needed to get a good education and start a good business (Atkinson & Bourguignon, 2014). Sustained and high inequality levels most especially in issues revolving around income opportunity can cause large social costs to the society. For instance, inequality in income distribution can cause detrimental implications to individual’s education as well as their choices when it comes to occupation and in the process, it does not provide the best incentives most especially if it rests on rents (Atkinson & Bourguignon, 2014). In simple terms, unequal distribution of income makes individuals within a country to divert their overall talents towards realizing their favored protection and treatment and in the process, leading to increasing levels of corruption, nepotism, resource misallocation coupled with adverse economic and social consequences (Bertola Foellmi & Zweimüller 2014). In fact, statistical evidence indicates that the growing influence of the rich coupled with the stagnant incomes of the poor was one of the reasons why there are increased cases of financial and economic crises that hurt both the long-term and short-term economic growth of a country (Atkinson & Bourguignon, 2014). For instance, some scholars asserts that the prolonged inequality in income distribution in advanced economies was one of the reasons why the global financial crisis that occurred in the year 2008 since it intensified leverage, relaxation in mortgage underwriting , and it increased overextension of credit. In the process, it gave lobbyists an opportunity to push for deregulation of financial matters.

Principles of Income Distribution

I. Lorenz’s Curve

One of the well-known principles of determining income distribution is the Lorenz curve. Additionally, the Lorenz curve is universally acknowledged as a graphical representation of the percentage of the overall income that is realized through cumulative percentages of family income. In this case, it is an effective means of visualizing the extent and the degree of inequality of income. For instance, the more specific area between the areas of perfect equality or rather the diagonal line and the Lorenz curve is the extent to which inequality is evident in the total income distribution (Atkinson & Bourguignon, 2014).

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Figure 1: Lorenz curve (Source: Jeanette Branzuela, 2014.general Principles of Income distribution. Retrieved from: http://www.slideshare.net/etteneaj/general-principles-of-income-distribution)

II. Income Mobility

Economic mobility is universally acknowledged as the ability of family, an individual, or some other groups to lower or improve on their current economic status that is usually determined by the level of income (Stockhammer, 2012). Additionally, economic mobility is in most cases measured by the movement between the quintiles of income. In essence, the concept of economic mobility may be classified as a type of social mobility in which its measurements are determined by the increase or decrease in the income levels of individuals (Atkinson & Bourguignon, 2014).

III. Gini Co-Efficient

The Gini-coefficient is another important principle of economics that is used in measuring the level of income inequality between individuals. In this case, if it is assumed that there are M numbers of distinct income groups, and each income group is represented by letter j but there are approximately m such income groups (Atkinson & Bourguignon, 2014). Therefore, it is accepted that within each individual income group, there are various individuals within that group that are earning such income hence the total number of individuals earning that level of income is approximately

Source: (Jeanette Branzuela, 2014.General Principles of Income distribution. Retrieved from: http://www.slideshare.net/etteneaj/general-principles-of-income-distribution)

The Gini-coefficient does not take into consideration the difference that occurs between the mean income and the individual income as it would be measured using co-efficient of variation (Cruces, Perez-Truglia, & Tetaz, 2013). However, the Gini coefficient instead takes into consideration the income differences within all income pairs. The difference realized through these measurements is then added together with absolute values being employed such that the information employed is not lost most especially through values being both negative and positive.

Economic principles: Mankiw principles

People face trade offs

It is economically accepted that there is nothing like free lunch, to get satisfied by one thing, it is acknowledged that people often have to make do without another. In this case, some of the economic tradeoffs are how people have to spend their income and the trade-off between equity and efficiency (Stockhammer, 2012). Another good example when dealing with income distribution is the fact that the more individuals spend on protecting themselves, the less they will spend on improving their standards of living. In fact, acknowledging the fact that trade-offs exist does not at any one point indicate the type of decisions that individuals will or should make.

The cost of something is what individuals give up to get satisfaction.

Since individuals face trade-offs, it is important to note that making decisions needs comparing the benefits and the costs of alternative actions courses. In other words, this is acknowledged as an opportunity cost of a good. In this case, when individuals what to determine anything to do with income, it is important for a persona making the decision to take into consideration the opportunity cost of each possible alternative (Stockhammer, 2012).

Rational individuals think at the margin

Economists in most cases often think that individuals are rational. In this case, most consumers would like to purchase the type of goods that will ensure that they obtain maximum satisfaction from consuming them. Additionally, companies and corporations would like to make investment decisions that will ensure that the company realizes net revenues. As such, most decisions involve incremental decisions such that rational people are believed to often make their decisions by comparing marginal costs and marginal benefits.

Individuals respond to incentives

Individuals are assumed to make their final decisions based on the detriment and benefit of the decision. Additionally, individuals decide on anything that will give them a desire to do work. Moreover, incentives may result into a positive intention or a negative intention in a more positive or negative way (Miyazawa, 2012).

Trade can elevate the status of everyone

Trade cannot be viewed in the same way as a sports competition where there is a loser and a winner. It is universally acknowledged that countries i9ncur significant benefits when they enter into a business transaction with one another. In this case, even income distribution will increase trade opportunities and in the process, it will allow for specialization the will be instrumental in increasing the economy of a country (Stockhammer, 2012).

Markets are a good way to structure economic activity.

Another avenue where the issue of income distribution can be instrumental is the fact that many countries in the modern century that once possessed centrally planned economies have as of recent abandoned it and in the process, they are trying to establish market economies. Since market, prices are able to reflect the true product value (Miyazawa, 2012).

Governments can at times improve the outcomes of the market

When an economic market does not distribute resources efficiently, it is the responsibility of the government to ensure that income and resources are distributed effectively though government policies. Some of the most common examples of regulation include pollution regulation and monopolies.

A nation’s welfare and the standards of living depend on its ability to produce services and goods.

Any country whose workers are able to produce a vast number of goods and services per unit of time are able to benefit from the advantage of having a higher standard of living. In so doing, the income is evenly distributed; a nation’s productivity increases, and so does it overall average revenue.

Prices Increases When the Government Supplies Too Much Money

It is universally acknowledged that, when a country is able to supply too much money, then the money value tends to fall. As a result, the prices of goods and services shoot up hence requiring more money to purchase the same goods and services. In other words, this is one reason why the concept of income distribution is very important (Socías, Koehoorn & Shoveller, 2016).

Society Faces a Short-Run tradeoff between Unemployment and Inflation

Reducing the inflation level in most cases often result into a temporary increment in unemployment. Additionally, this economic trade-off is very vital in comprehending the short run implications of changes in government, taxes, monetary policy, and government spending (Stockhammer, 2012).

Conclusion

Income distribution is an important economic issue that possesses significant importance to the society because of its extensive economic principles. Additionally, some of the causes of income inequality include education and training, ability differences, discrimination, unequal distribution of wealth, market power, tastes and risks, luck, connections and misfortunes. In essence, poor income distribution can be taken as an indicator of lack of income opportunity or income mobility in the society. Moreover, widening gap in income distribution and inequality possess significant implications for microeconomic stability and growth of the economy. In this case, inequality can concentrate the power and resources under the ownership of a few individuals within the society hence resulting into suboptimal employment of human resources, raise crisis risk, economic instability and political instability. As a result, the social and economic fallout from the financial crisis that affected countries around the globe coupled with the resultant headwinds to economic global employment and growth have increased the attention that the concept of income distribution and inequality is currently receiving.

References

Atkinson, A. B., & Bourguignon, F. (Eds.). (2014). Handbook of Income Distribution SET vols. 2A-2B. Elsevier.

Bertola, G., Foellmi, R., & Zweimüller, J. (2014). Income distribution in macroeconomic models. Princeton University Press.

Bitler, M., & Hoynes, H. (2015). Heterogeneity in the Impact of Economic Cycles and the Great Recession: Effects within and across the Income Distribution. The American Economic Review, 105(5), 154-160.

Cruces, G., Perez-Truglia, R., & Tetaz, M. (2013). Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment. Journal of Public Economics, 98, 100-112.

Miyazawa, K. (2012). Input-output analysis and the structure of income distribution (Vol. 116). Springer Science & Business Media.

Peichl, A., Pestel, N., & Schneider, H. (2012). Does size matter? The impact of changes in household structure on income distribution in Germany. Review of Income and Wealth, 58(1), 118-141.

Stockhammer, E. (2012). Financialization, income distribution and the crisis. Investigación económica, 39-70.

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The teacher requires to state clear “where is the trade off? => explicit(clear) in the first part (introduction)”

It is hard to see the answer to the teacher’s question.

The instance is not well deductive as it does not explain why income distribution inequality has direct influence on ill health spending and educational performance before or after this sentence.

Why do these elements play a crucial role? So the health and education of the poor has such a huge influence on the whole economy?

Is it a proper way to express this issue? What about income distribution inequality or unbalanced income distribution?

What does child payments mean? And why are these external factors the essential reasons for distribution inequality?

Principal?

Meaning unclear

ARE economic analysis output, relative prices, and employment parallel factors?

So what does this part have to do with functional income distribution?

Meaning unclear

Is the expression proper? Inequality is required to increase?

�Please add notes to each paragraph of this part so that we can understand your logic and trains of thought.

INCOMPLETE SENTENCE. MEANING UNCLEAR

Income distribution is not a value, please rephrase it.

The teacher says to use 10 mankiw principles, so are these principles still necessary for this paper?