Addressing income and wealth inequality
Addressing income and wealth inequality: build the core model, apply it to evidence and qualify conclusions where outcomes depend on context.
Section 3.3 · Addressing income and wealth inequality
9708 section 3.3; AS Level. Checked against Cambridge's 2026–2028 Version 2 (latest version published December 2025) and 2029 Version 1 (published September 2026). Cambridge states that neither version has significant changes affecting teaching. Always follow the syllabus for the candidate's examination year.
Before you begin
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which statement correctly distinguishes income and wealth?
What you will learn
- Distinguish income as a flow from wealth as a stock
- Interpret the Gini coefficient without calculating it
- Explain economic causes of inequality
- Evaluate policies to redistribute income and wealth
Core model and terms
Income is a flow earned over a period; wealth is a stock of assets owned at a point in time, net of relevant liabilities. A Gini coefficient summarises inequality on a scale where a higher value indicates a less equal distribution; calculation is not required here, and the measure does not explain causes by itself.
Apply and evaluate
Differences in skills, opportunities, ownership, discrimination and bargaining power can shape income and wealth. Minimum wages, transfers, progressive income or capital taxes and public services can redistribute resources, but effects depend on coverage, incentives, administration and the people reached.
Pause and explain
Which statement best applies addressing income and wealth inequality?
Worked example
Two households each earn $30,000 this year, but one owns substantial assets. Explain how their income and wealth positions can differ.
Show the worked solution
- Their current incomes are equal
- One household owns more accumulated assets
- Their wealth differs even though this year’s income is the same
Answer Their current incomes are equal → One household owns more accumulated assets → Their wealth differs even though this year’s income is the same
Try a topic test
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Two households each earn $30,000 this year, but one owns substantial assets. Explain how their income and wealth positions can differ.
Give me a hint
Compare a period flow with assets accumulated at a point in time.
Compare my reasoning
- Their current incomes are equal
- One household owns more accumulated assets
- Their wealth differs even though this year’s income is the same
Their current incomes are equal One household owns more accumulated assets Their wealth differs even though this year’s income is the same
Look for these in your work
- Their current incomes are equal
- One household owns more accumulated assets
- Their wealth differs even though this year’s income is the same
A country’s Gini coefficient rises. State the conventional interpretation and one limitation.
Give me a hint
Interpret the direction, then identify what a summary statistic cannot show.
Compare my reasoning
- A higher Gini indicates greater measured inequality
- It compresses a whole distribution into one number
- It does not identify the causes or every group’s change
A higher Gini indicates greater measured inequality It compresses a whole distribution into one number It does not identify the causes or every group’s change
Look for these in your work
- A higher Gini indicates greater measured inequality
- It compresses a whole distribution into one number
- It does not identify the causes or every group’s change
A government raises a means-tested transfer for low-income households. Explain one distributional effect and one possible implementation issue.
Give me a hint
Consider disposable income and the rules for eligibility.
Compare my reasoning
- Eligible households receive more transfer income
- Their disposable income can rise
- Take-up, eligibility thresholds and administration affect who benefits
Eligible households receive more transfer income Their disposable income can rise Take-up, eligibility thresholds and administration affect who benefits
Look for these in your work
- Eligible households receive more transfer income
- Their disposable income can rise
- Take-up, eligibility thresholds and administration affect who benefits
A higher minimum wage raises pay for some workers. Explain why its effect on inequality is not automatic.
Give me a hint
Consider coverage, employment and households outside paid work.
Compare my reasoning
- Covered workers who keep their jobs may earn more
- Some workers may be outside coverage or lose hours
- The overall distribution depends on employment and household circumstances
Covered workers who keep their jobs may earn more Some workers may be outside coverage or lose hours The overall distribution depends on employment and household circumstances
Look for these in your work
- Covered workers who keep their jobs may earn more
- Some workers may be outside coverage or lose hours
- The overall distribution depends on employment and household circumstances
Common mistakes
- Using income and wealth interchangeably, or claiming one redistribution policy must reduce inequality for every household.
What can you explain now?
Which statement correctly distinguishes income and wealth?
Compare with the explanation
Income is measured over a period; wealth is a stock measured at a point in time
A flow has a time interval, while a stock records an amount at a date.
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Make it stick
Before moving on, explain the central idea in addressing income and wealth inequality and state one condition that could change its effect.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.