AQA A-level Economics: Income and wealth: Lorenz curve and Gini coefficient (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions follow the AQA AS and A-level Economics specification (version 1.3, 29 June 2022), A-level sub-section The distribution of income and wealth: poverty and inequality, first part (3.1.7.1 on the AQA website, 4.1.7.1 in the combined PDF). Every country and number here is made up for illustration. The specification asks you to interpret the Gini coefficient, not calculate it. Prepare with the study guide and revision notes. The AQA A-level Economics hub and the printable checklist show the wider course, and the free diagnostics find weak spots.

Questions

1. Define income and wealth, and state one way they differ. [2]

2. A household has a house worth 320,000 with a mortgage of 210,000, savings of 15,000, pension rights of 55,000 and a car worth 8,000. Its annual income is 36,000. Calculate its net wealth, then divide by annual income to give the ratio. [3]

3. Country E’s household income by fifth, poorest to richest, is shown as a percentage share.

Fifth	1st	2nd	3rd	4th	5th
Before tax and benefits	5	8	13	21	53
After tax and benefits	6	10	16	23	45

The Gini coefficient is 0.44 before and 0.36 after.

(a) Calculate the share of the poorest 60% of households before and after. [2] (b) Calculate how many times larger the richest fifth’s share is than the poorest fifth’s, before and after. [2] (c) Interpret the change in the Gini coefficient. [2]

4. Country A’s income Gini coefficient falls from 0.52 to 0.47.

(a) Calculate the percentage fall. [2] (b) Explain why this does not prove that poor households are better off. [2]

5. Explain the difference between equality and equity in the distribution of income, using an example. [4]

6. A household inherits 150,000 and invests it at 4% a year for 15 years.

(a) Calculate its value after 15 years. [2] (b) Explain why inheritance and compounding help to explain why wealth is distributed more unequally than income. [3]

7. The government moves 2,000 from high-income households with a marginal propensity to consume of 0.25 to low-income households with 0.85.

(a) Calculate the net change in consumption. [3] (b) Explain one possible cost of making the distribution more equal. [2]

8. Explain how a monopsony employer can add to income inequality. [4]

9. Five households value a vaccination at 90, 80, 66, 55 and 30. It costs 50 to provide, and each vaccination gives an external benefit of 15. The fourth household can afford only 40.

(a) State how many vaccinations are bought with and without the budget constraint. [2] (b) Calculate the welfare loss caused by the constraint. [2] (c) State what this shows about inequality and market failure. [1]

10. Two politicians study the same Lorenz curve. One wants a much more equal distribution; the other wants little change. Explain how value judgements can account for this. [6]

11. Evaluate whether a government should aim for a substantially more equal distribution of income. [12]

Answers

1. Income is money coming in during a period, a flow [1]. Wealth is what a household owns at one moment, less what it owes, a stock [1]. [2] Examiner insight: the flow-versus-stock contrast is the clearest difference, so state it rather than saying only that wealth is “bigger”.

2. Assets = 320,000 + 15,000 + 55,000 + 8,000 = 398,000 [1]. Net wealth = 398,000 - 210,000 = 188,000 [1]. 188,000/36,000 = 5.2 times income [1]. [3] Examiner insight: subtract debt and show the assets total, so your working is visible if a figure slips.

3. (a) Before: 5 + 8 + 13 = 26% [1]. After: 6 + 10 + 16 = 32% [1]. [2] (b) Before: 53/5 = 10.6 times [1]. After: 45/6 = 7.5 times [1]. [2] (c) A fall in the Gini coefficient means a more equal distribution [1]. The Lorenz curve has moved towards the line of equality, so taxes and benefits reduced inequality [1]. [2] Examiner insight: use the figures and name the direction, since “it changed” says little. Do not calculate the Gini, as the specification asks you to interpret it.

4. (a) Fall = 0.52 - 0.47 = 0.05 [1]. 0.05/0.52 = 9.6% [1]. [2] (b) The Gini measures relative shares, not absolute income [1]. Incomes at the bottom could have fallen while the top fell further, or the whole economy could have shrunk [1]. [2] Examiner insight: separate relative from absolute measures.

5. Equality means everyone receives the same share [1]. Equity means a distribution judged fair and just [1]. Equity is a value judgement, so people disagree about it [1]. Example: paying more to a household with young children is unequal but may be seen as equitable, while equal shares ignore need [1]. [4] Examiner insight: the example earns more credit when it shows the two ideas pulling apart.

6. (a) 150,000 x 1.04^15 [1] = 270,142 [1]. [2] (b) Inheritance gives some households a start without saving from income [1]. Returns compound, so a larger starting sum grows by more in absolute terms [1]. Earnings are received and largely spent each period, whereas assets are carried forward, so wealth gaps can persist across generations [1]. [3] Examiner insight: connect each factor to why it makes wealth, not just income, more unequal.

7. (a) High-income fall: 0.25 x 2,000 = 500 [1]. Low-income rise: 0.85 x 2,000 = 1,700 [1]. Net = 1,700 - 500 = +1,200 [1]. [3] (b) Higher marginal tax rates may weaken incentives to work, save or invest [1], so output and future income may be lower than otherwise [1]. [2] Examiner insight: give the cost with a chain of reasoning, and say whether it is likely to be large.

8. A monopsony is the sole or dominant buyer of labour [1]. It can pay below the competitive wage because workers have few alternative employers [1]. Profit rises and goes to owners [1], while workers on low pay get a smaller share, so the gap widens [1]. [4] Examiner insight: explain why the wage is held down, then show who gains and loses.

9. (a) Without: values of at least 50 buy, so four buy [1]. With: the fourth cannot pay, so three buy [1]. [2] (b) The fourth vaccination has a social benefit of 55 + 15 = 70 [1]. Loss = 70 - 50 = 20 [1]. [2] (c) Unequal incomes reduce ability to pay, so inequality can cause under-consumption of a merit good [1]. [1] Examiner insight: name the link between ability to pay and the loss.

10. The data are the same, so the difference lies in values [1]. The first politician weights equality or need heavily [1] and so supports higher taxes on top incomes and more spending on benefits [1]. The second weights reward for effort and incentives [1] and so regards the current inequality as fair, and prefers low tax rates [1]. Measurement can show the size of inequality but not which distribution is equitable, so the positive evidence does not decide the dispute [1]. [6] Examiner insight: keep positive statements (what the data show) apart from normative ones (what should be done).

11. Benefits of more equality:

• Poorer households spend more of extra income, so consumption rises [1].
• Less waste of talent, as more people can fund education and training [1].
• Lower inequality helps cohesion and may reduce market failure from under-consumption of merit goods [1].
• Excessive inequality may harm growth [1].

Costs and counterpoints:

• Higher marginal tax rates can weaken incentives to work, save and invest [1].
• High earners may leave or avoid tax, which reduces revenue [1].
• Some inequality rewards effort and risk-taking, supporting enterprise [1].
• High savers fund investment [1].

Evaluation:

• Depends on how equality is achieved: education may widen opportunity at less cost to incentives than high tax rates [1].
• Depends on the starting level: reducing excessive inequality has larger gains than cutting a modest gap [1].
• Depends on time period, because training pays back slowly [1].
• Judgement with a reason: aim for a more equal distribution where inequality is excessive, using tools that protect incentives, accepting that the aim rests on value judgements [1]. [12] Examiner insight: credit goes to answers that reach a supported conclusion, rather than listing pros and cons, and that state the value judgement involved.

Where marks are usually lost

• Treating wealth as a flow, or using the two terms as if identical.
• Reading a higher Gini as more equality.
• Trying to calculate the Gini when asked to interpret.
• Treating equality and equity as the same.
• Giving the Lorenz axes without saying households are ranked poorest first.
• Claiming a lower Gini proves the poor are better off in absolute terms.
• Forgetting to subtract debt when finding net wealth.
• Describing costs and benefits of redistribution with no judgement.

Next steps

• Recap with the revision notes or the study guide.
• Go to the AQA A-level Economics hub and the checklist.
• Take all the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA AS and A-level Economics specification, version 1.3 (29 June 2022), published by AQA: the A-level sub-section The distribution of income and wealth: poverty and inequality, first part (3.1.7.1 on the AQA website, printed as 4.1.7.1 in the combined PDF).