Hi Folks, please follow the instructions for today's lesson! I may be around on twitter if you have questions!

2. A2 Economics
Equity &
Equality
Learning Objectives
To understand the concept of equality
To understand the concept of equity

3. Last summer in Microeconomics
Distribution of Income
Distribution of Wealth
Inequality
•Causes
•Consequences
Equity & Learning Objectives
To understand the concept of equality
Equality To understand the concept of equity

4. Equality – the situation where goods and services
in a society are distributed equally
The benefits of equality:
•Improves social cohesion – less difference
•Improves health – greater access
•Can encourage economic growth – less saving
Issues created by equality:
•Lack of incentive to work harder; what’s the point?
•Profit motive drives the economy
•International competitiveness: in highly re-distributive economies
(high taxes and benefits) may act as an uncompetitive constraint
in the economy

5. Equity
Equity – the concept of ‘fairness’
http://www.tutor2u.net/economics/content/topics/marketfail/
notions_equity.htm
There can be no universal definition of equity:
•What some will consider fair reward for work done, others may
consider unfair
•Refers to a “good” distribution of welfare across society
The significance of equity:
•The concept of fairness will be part of the economic policy
making process
•Many economic policies will aim to improve equity

6. Types of Equity
Equity applies in the construction of tax systems:
Horizontal Equity - people with a similar ability to pay taxes
should pay the same or similar amounts
Vertical Equity - people with a greater ability to pay taxes should
pay more
Truly equitable tax systems will deliver horizontal and
vertical equity.
E.g. income tax has both horizontal and vertical equity.

7. Redistribution
Using the tax and benefit system to transfer wealth from the
wealthy to the poor.
•20% standard tax rate
•40% higher tax rate
•50% tax rate on high income earners – but will end soon
Improves equity:
•Raises consumption by the poor
Issues:
•May damage the incentive to work
•Deadweight loss caused by inefficiency of taxation

8. Essay of the week
In trios, discuss the benefits and constraints of using the tax system
to create a more equitable society.
What else could make society more equitable?
Essay question:
Assess the view that poverty can be eliminated solely through
changes to the tax and benefit system? (25 marks) (Jan. 2009)
Get Jake to lead a discussion on an essay plan!
Equity & Learning Objectives
To understand the concept of equality
Equality To understand the concept of equity