Cambridge A Level Economics: Equity, equality, poverty and redistribution policies (9708) – 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 cover section 8.2 (Equity and redistribution of income and wealth) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 8 is A Level content, so it is not examined at AS. All countries and figures are invented. Learn the content first from the study guide and the revision notes. See also the Cambridge A Level Economics hub and the printable checklist.

Questions

1. Distinguish between equity and equality. [3]

2. In Country Z, income tax is 25% of income above 12,000. Three adults earn 12,000, 24,000 and 48,000. Find the tax paid and the average tax rate for each adult, and explain what the pattern shows about equity. [4]

3. In Country Y, income is taxed at 20% up to 20,000 and 45% above that. A worker earning 40,000 is offered 5,000 of extra pay. (a) Calculate how much of the extra pay the worker keeps. [2] (b) Explain how a rate like this might reduce efficiency. [3]

4. Eight households in Country X have monthly incomes per person of 260, 340, 430, 520, 640, 780, 900 and 1,100. The absolute poverty line is 400 and the relative line is 50% of median income. (a) Calculate the number of households in absolute poverty and in relative poverty. [3] (b) The four highest incomes each rise by 50%, and the others do not change. Show what happens to each measure. [3]

5. In Country W a family receives a means-tested benefit of 6,000, cut by 50 for each 100 of earnings. Income tax is 25% of earnings. (a) Calculate net income (earnings, less tax, plus benefit) at earnings of 0, 8,000 and 12,000. [3] (b) Calculate the effective marginal tax rate and show it matches your answer to (a). [2] (c) Explain why this is called a poverty trap. [3]

6. Country V introduces a negative income tax with a guaranteed income of 3,000 and a tax rate of 25%. (a) Calculate the break-even income. [2] (b) Calculate the net income of a person earning 4,000 and of a person earning 16,000. [2] (c) Explain how this differs from the benefit in question 5 in its effect on incentives. [2]

7. Country U has 250,000 households and plans a heating grant. Option 1 pays 300 to every household. Option 2 pays 900 to the 50,000 poorest households, with administration costing 10% of the grant paid. (a) Calculate the cost of Option 1. [1] (b) Calculate the cost of Option 2. [2] (c) Calculate what each poorest household would get if Option 1’s budget were targeted only at them. [1] (d) Give one strength and one weakness of Option 2, with reasons. [3]

8. Country T has 1 million adults and proposes a universal basic income of 4,000 each. It would replace 1.5 billion of existing benefits. Taxable income is 20 billion and the remaining cost is met by a flat income tax. (a) Calculate the gross cost and net cost. [2] (b) Calculate the flat tax rate needed. [1] (c) Calculate the break-even income, and explain what it means. [2] (d) State the net change for a person earning 50,000. [1]

9. Discuss whether reducing inequality must reduce efficiency. [8]

10. Evaluate whether means-tested benefits or a universal basic income is the better way to reduce poverty. [12]

Answers

1. Equality means the same outcomes or the same treatment, and it can be measured [1]. Equity means fairness, which is a normative judgement on which people disagree [1]. The two can conflict: a fixed charge of equal size is equal but may be thought unfair, because it takes more of a poor person’s income [1]. [3] Examiner insight: Defining both terms is not enough. The third point comes from showing that they can pull apart, with a short example.

2. Tax at 12,000 is 0, so the rate is 0% [1]. At 24,000, tax = 0.25 × 12,000 = 3,000, so the rate is 12.5% [1]. At 48,000, tax = 0.25 × 36,000 = 9,000, so the rate is 18.75% [1]. The average rate rises with income, so the system is progressive and shows vertical equity, if you accept that higher earners should pay a larger share [1]. [4] Examiner insight: Show the tax-free amount being removed before multiplying. Close by saying whose view of fairness you are assuming.

3. (a) Extra tax = 0.45 × 5,000 = 2,250 [1]. The worker keeps 5,000 − 2,250 = 2,750, or 55% [1]. (b) A high marginal rate lowers the reward for extra work [1]. The worker may refuse overtime or work less, so output is lost [1]. Labour is then under-used, so the economy produces less than it could with its resources [1]. [5] Examiner insight: A strong explanation runs from the rate to the choice to the lost output. Saying only that “people work less” stops at the first link.

4. (a) Median = (520 + 640) ÷ 2 = 580 [1]. Relative line = 290, so only 260 is below it: 1 household [1]. Absolute line 400: 260 and 340 are below it: 2 households [1]. (b) The new incomes are 260, 340, 430, 520, 960, 1,170, 1,350 and 1,650. The median = (520 + 960) ÷ 2 = 740 and the line = 370 [1]. Households below 370 are 260 and 340: relative poverty rises from 1 to 2 households [1]. Absolute poverty is unchanged at 2, because the fixed line has not moved and 260 and 340 are still below it [1]. [6] Examiner insight: Work out the new median before the new line. Using the old line is the usual slip, and it hides the main point that relative poverty can rise when nobody has become poorer.

5. (a) Earnings 0: net income = 6,000 [1]. Earnings 8,000: tax = 2,000, benefit = 6,000 − 4,000 = 2,000, net = 8,000 − 2,000 + 2,000 = 8,000 [1]. Earnings 12,000: tax = 3,000, benefit = 0, net = 12,000 − 3,000 = 9,000 [1]. (b) Effective marginal tax rate = 25% + 50% = 75% [1]. Check: from 8,000 to 12,000 earnings rise by 4,000 and net income by only 1,000, so 75% is lost [1]. (c) A poverty trap exists where earning more brings little or no gain [1], because benefit is withdrawn and tax is paid on each extra unit [1]. Here, earnings of 12,000 raise net income by only 3,000 over zero earnings, so households stay poor and have little reason to work more [1]. [8] Examiner insight: Define the trap first, then tie it to the figures. A bare statement that “benefits are too generous” explains the wrong cause.

6. (a) Break-even = G ÷ t = 3,000 ÷ 0.25 [1] = 12,000 [1]. (b) Earnings 4,000: payment = 3,000 − 1,000 = 2,000, so net = 6,000 [1]. Earnings 16,000: payment = 3,000 − 4,000 = −1,000, so net = 16,000 − 1,000 = 15,000 [1]. (c) Each extra unit earned adds 75% to net income at every level, so the effective marginal rate is 25%, against 75% in question 5 [1]. This keeps a stronger incentive to work, and there is no point where the benefit ends suddenly [1]. [6] Examiner insight: Compare like with like by quoting both marginal rates. A general statement that NIT “encourages work” does not use the figures.

7. (a) 250,000 × 300 = 75 million [1]. (b) Grant = 50,000 × 900 = 45 million [1]. Administration = 4.5 million, so total = 49.5 million [1]. (c) 75 million ÷ 50,000 = 1,500 [1]. (d) Advantage: money goes to those most in need, so a given budget reduces poverty more [1]. Disadvantage: some eligible households may not claim, because of stigma or complexity, and administration costs money [1]. Link: a claim rate of 80% would mean 10,000 of the poorest receive nothing, so the policy may miss the people it aims at [1]. [7] Examiner insight: Developing one disadvantage fully is usually stronger than naming two in a few words each.

8. (a) Gross cost = 1,000,000 × 4,000 = 4 billion [1]. Net cost = 4 − 1.5 = 2.5 billion [1]. (b) Rate = 2.5 ÷ 20 = 12.5% [1]. (c) Break-even = 4,000 ÷ 0.125 = 32,000 [1]. Below this level a person gains more from the payment than they pay in tax, and above it they are net contributors [1]. (d) 4,000 − 0.125 × 50,000 = −2,250, a net loss of 2,250 [1]. [6] Examiner insight: Say what the break-even figure means. Quoting the number alone leaves its meaning unexplained.

9. Arguments for a conflict: high taxes cut the reward for work, saving and risk-taking [1]. Benefits may reduce the incentive to search for work [1]. Tax collection and benefit administration use real resources [1]. Arguments against: spending on education, health and nutrition raises productivity and uses unused talent [1]. Severe inequality can cause instability and weak demand, which harms growth [1]. The size of the effect depends on how far people respond to incentives [1] and on design, such as smooth withdrawal of benefits instead of steep cuts [1]. Judgement: no necessary conflict, since a well-designed policy may cost little efficiency, and the answer depends on the rate and the form of redistribution [1]. [8] Examiner insight: A one-sided answer cannot reach the judgement point. State what would make the conflict large or small.

10. Means-tested benefits go only to households below an income or wealth limit [1], while a UBI pays everyone, with no test [1]. For means-testing: it targets the poor, so a given budget gives them more [1]. Against: steep withdrawal creates a poverty trap and weakens work incentives [1], stigma and complexity cause low take-up [1], and administration costs resources [1]. For UBI: no trap, since payment does not fall as earnings rise [1], and it is simple with no stigma [1]. Against: the gross cost is large and needs higher taxes [1], and payments to the well-off dilute help for the poorest, who may lose if the UBI replaces larger targeted benefits [1]. The income effect may cut hours, while the substitution effect favours work [1]. Judgement: the better policy depends on the size of the payment, the taper rate and the funding, and a UBI looks stronger on incentives while means-testing looks stronger on cost [1]. [12] Examiner insight: Weigh the two on the same criteria (poverty reduction, incentives, cost). Two separate lists of points leave the comparison unmade.

Where marks are usually lost

• Defining equity and equality without showing how they can conflict.
• Finding a poverty line without calculating the median first.
• Using the old median after incomes have changed.
• Saying growth always reduces relative poverty.
• Writing that benefits are “too high” instead of explaining the withdrawal rate.
• Quoting a break-even income without saying what it means.
• Ignoring administration costs and take-up when comparing benefits.
• Ending an evaluation with a summary and no reasoned judgement.

Next steps

• Revise with the revision notes.
• Re-read the study guide.
• Tick off topics on the printable checklist and see the course hub.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education), section 8.2.