Cambridge A Level Economics: Income and wealth inequality and redistribution (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 3.3 (Addressing income and wealth inequality) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 3 is AS Level content and is assumed knowledge for A Level Papers 3 and 4. All countries, households and figures are invented.

Links: Cambridge A Level Economics hub, printable checklist, study guide, revision notes and free 10-minute diagnostics.

Questions

1. Explain the difference between income as a flow and wealth as a stock, using one example of each. [3]

2. In Country P the income Gini coefficient is 0.41 before taxes and benefits and 0.33 after them. The wealth Gini coefficient is 0.74.

(a) Explain what the change from 0.41 to 0.33 shows. [2] (b) Explain why the wealth Gini coefficient is higher than the income Gini coefficient. [3]

3. Country R taxes income at 0% up to 12,000, 25% from 12,000 to 40,000 and 45% above 40,000.

(a) Calculate the tax paid on an income of 30,000. [2] (b) Calculate the average rate of tax on an income of 80,000. [2] (c) State the marginal rate faced by someone earning 80,000. [1]

4. Explain two limitations of using the Gini coefficient to compare inequality between countries. [4]

5. In a low-skill labour market, demand is L = 900 − 25w and supply is L = −100 + 25w, where w is the hourly wage and L is thousand hours a week.

(a) Calculate the equilibrium wage and employment. [3] (b) A minimum wage of 24 is introduced. Calculate the unemployment created. [2] (c) Calculate the elasticity of labour demand between the two wages. [2] (d) State what happens to the total wage bill. [1]

6. A government pays a universal benefit of 40 a week to 500,000 households. It considers a means-tested benefit of 80 a week to the 200,000 poorest households.

(a) Calculate the weekly saving. [2] (b) Explain one advantage and one disadvantage of the means-tested benefit. [4]

7. An estate of 640,000 is taxed at 35% above a threshold of 300,000.

(a) Calculate the tax due and the effective rate as a percentage of the estate. [3] (b) Explain two reasons why an inheritance tax may fail to reduce wealth inequality. [4]

8. Two households have incomes of 12,000 and 84,000. The government provides each with health and education worth 6,000.

(a) Calculate the value of this provision as a percentage of each income. [2] (b) Calculate the ratio of the richer household’s income to the poorer household’s before and after the provision. [2] (c) Explain one disadvantage of state provision as a way of reducing inequality. [2]

9. A household invests 100,000 at 5% a year, with interest reinvested.

(a) Calculate the value of the investment after 15 years and the gain. [2] (b) Explain how this helps to explain why wealth is unequally distributed. [3]

10. In Country S, occupation X has demand L = 500 − 10w and supply L = −100 + 20w. Occupation Y has demand L = 420 − 20w and supply L = −60 + 40w.

(a) Calculate the equilibrium wage in each occupation. [4] (b) Demand for X rises to L = 560 − 10w. Calculate the new wage and employment. [2] (c) Explain two reasons why wages differ between occupations. [2]

11. Evaluate whether progressive income taxes are the most effective policy for reducing income inequality. [12]

Answers

1. Income is a flow: money coming in over a period such as a month [1]. Wealth is a stock: what is owned, net of what is owed, on a given date [1]. Example: monthly wages (income) and a house or savings account balance (wealth) [1]. [3] Examiner insight: bring in the time dimension (over a period versus on a date); an example alone does not show the distinction.

2. (a) Taxes and benefits reduced the Gini coefficient [1], so inequality in post-tax income is lower than in market income [1]. [2] (b) Wealth is accumulated over time from saved income [1]. Higher earners save more [1]. It is passed on by inheritance and grows with asset price rises, while poorer households may hold debt [1]. [3] Examiner insight: read the direction correctly: a lower Gini means less inequality, and tie the explanation to the figures given.

3. (a) Taxable amount in the 25% band = 30,000 − 12,000 = 18,000 [1]. Tax = 18,000 × 0.25 = 4,500 [1]. [2] (b) Tax = 28,000 × 0.25 + 40,000 × 0.45 = 7,000 + 18,000 = 25,000 [1]. Average rate = 25,000 ÷ 80,000 = 31.25% [1]. [2] (c) 45% [1]. [1] Examiner insight: tax each band separately; applying 45% to the whole income is a common slip that gives the wrong tax and the wrong average rate.

4. Any two, each developed. One number hides the shape of the distribution [1], so two countries with different distributions can have the same value [1]. It does not show absolute living standards [1], because a low value can mean everyone is equally poor [1]. Another valid limitation is differences in the measure used (income or wealth, before or after tax, household or individual), which reduce comparability. [4] Examiner insight: give each limitation a consequence for the comparison, rather than only naming it.

5. (a) 900 − 25w = −100 + 25w, so 1,000 = 50w [1]. w = 20 [1]. L = 900 − 500 = 400 [1]. [3] (b) Demand at 24 = 900 − 600 = 300 [1]. Supply = −100 + 600 = 500, so unemployment = 200 [1]. [2] (c) %ΔL = −100 ÷ 400 = −25% and %Δw = 4 ÷ 20 = +20% [1]. Elasticity = −1.25 [1]. [2] (d) The bill falls from 20 × 400 = 8,000 to 24 × 300 = 7,200 [1]. [1] Examiner insight: unemployment is supply minus demand at the new wage, not the fall in employment.

6. (a) Universal cost = 500,000 × 40 = 20m [1]. Means-tested cost = 200,000 × 80 = 16m, so the saving is 4m a week [1]. [2] (b) Advantage: money is concentrated on the poorest, who get twice as much [1], so poverty falls more per unit of spending [1]. Disadvantage: means testing costs money to administer, and some who qualify may not claim [1]. Withdrawal as earnings rise may reduce the incentive to work [1]. [4] Examiner insight: tie each point to the figures given or to how the benefit is designed; a bare “it is fairer” gains little.

7. (a) Tax = (640,000 − 300,000) × 0.35 = 340,000 × 0.35 = 119,000 [1]. Effective rate = 119,000 ÷ 640,000 [1] = 18.6% [1]. [3] (b) Avoidance through gifts, trusts or moving assets abroad [1] means less wealth is taxed [1]. Raises little revenue relative to total wealth, so little to spend on redistribution [1]. Unequal wealth in the stock is untouched during life, as the tax applies only at transfer [1]. [4] Examiner insight: explain how the weakness limits the effect on the distribution, not just that it exists.

8. (a) 6,000 ÷ 12,000 = 50% [1]. 6,000 ÷ 84,000 = 7.1% [1]. [2] (b) Before: 84,000 ÷ 12,000 = 7.0 [1]. After: 90,000 ÷ 18,000 = 5.0 [1]. [2] (c) Opportunity cost: the funding must come from taxes or other spending [1]. Better-off families may use the services as much, or get higher quality, so the gain to the poor is reduced [1]. [2] Examiner insight: show the working for both ratios; the comparison is the evidence for the fall.

9. (a) 100,000 × 1.05¹⁵ [1] = 207,893, a gain of 107,893 [1]. [2] (b) Returns on assets are a flow of income needing no labour [1]. Interest reinvested compounds [1], so those who start with more assets gain more in absolute terms and the gap widens [1]. [3] Examiner insight: the number is evidence; the marks come from explaining why it widens the gap.

10. (a) X: 500 − 10w = −100 + 20w, so 600 = 30w and w = 20 [2]. Y: 420 − 20w = −60 + 40w, so 480 = 60w and w = 8 [2]. [4] (b) 560 − 10w = −100 + 20w, so 660 = 30w and w = 22 [1]. L = 560 − 220 = 340 [1]. [2] (c) X pays more because its supply is limited by training or skills [1], and because demand for it is strong [1]. [2] Examiner insight: name the demand and supply forces in your own words and refer to the numbers.

11. Award credit for a balanced, developed argument. A strong answer includes:

• Analysis: a progressive tax raises the average rate with income, taking a larger share from high earners [1]. Revenue can fund transfers and state provision [1]. For example, a post-tax ratio of 8.5 against a pre-tax ratio of 12.5 shows a narrower gap [1]. It operates automatically as incomes change [1].
• Comparison: the minimum wage acts before tax but does not help the unemployed [1]. Transfers target poverty but cost money [1]. State provision builds human capital over time [1]. Inheritance and capital taxes act on the stock of wealth, which income tax does not [1].
• Evaluation: high marginal rates may reduce work or saving, and some will avoid tax or emigrate [1]. The effect depends on rate, bands, elasticity of labour supply and how revenue is used [1]. Short-run and long-run effects differ [1].
• Judgement: a reasoned conclusion, for example that progressive taxes are central because they fund other policies, but are most effective in combination [1]. [12] Examiner insight: a list of policies is descriptive. Compare them against the question’s criterion, effectiveness, and finish with a supported judgement.

Where marks are usually lost

• Treating income as a stock, or wealth as a flow.
• Interpreting a rising Gini coefficient as a move towards equality.
• Taxing the whole income at the top rate.
• Giving the marginal rate where the average rate was asked for.
• Giving unemployment as the fall in employment instead of excess supply of labour.
• Saying a minimum wage always causes job losses, without elasticity.
• Listing policies without comparing them or reaching a judgement.
• Ignoring that transfers and state provision are funded by taxes.

Next steps

• Revisit the revision notes and the study guide.
• Return to the Cambridge A Level Economics hub and tick off the printable checklist.
• Try all 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), section 3.3.