Equity, poverty and redistribution
Equity, poverty and redistribution: build the core model, apply it to evidence and qualify conclusions where outcomes depend on context.
9708 section 8.2; A 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
What makes relative poverty different from absolute poverty?
What you will learn
- Distinguish equity from equality
- Analyse the equity–efficiency relationship
- Distinguish absolute and relative poverty
- Explain the poverty trap
- Compare policies to improve equity and equality
Core model and terms
Equality describes sameness in an outcome or opportunity; equity is a judgement about fairness and may account for need, contribution or starting conditions. Equity and efficiency can conflict when taxes or transfers alter incentives, but the size and direction of any trade-off depend on policy design, service access and the gains from better health or education.
Apply and evaluate
Absolute poverty compares resources with a real-needs threshold; relative poverty compares living standards with those typical in a society. A poverty trap can occur when extra earnings trigger a large withdrawal of means-tested support alongside taxes, leaving little additional disposable income. Negative income tax tops up low earnings and phases out with income; universal benefits and a universal basic income broaden coverage, while means-tested benefits target support. Each approach trades off adequacy, take-up, work incentives, administration, cost and distribution.
Pause and explain
Which statement best applies equity, poverty and redistribution?
Worked example
A worker earns $100 more. A means-tested benefit falls by $60 and tax rises by $20. Calculate the change in disposable income and explain the incentive issue.
Show the worked solution
- Disposable-income gain = $100 − $60 − $20 = $20
- The worker keeps only one fifth of the extra earnings
- A high combined withdrawal rate can weaken incentives and contribute to a poverty trap
Answer Disposable-income gain = $100 − $60 − $20 = $20 → The worker keeps only one fifth of the extra earnings → A high combined withdrawal rate can weaken incentives and contribute to a poverty trap
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.
A worker earns $100 more. A means-tested benefit falls by $60 and tax rises by $20. Calculate the change in disposable income and explain the incentive issue.
Give me a hint
Subtract both withdrawals from the extra gross wage.
Compare my reasoning
- Disposable-income gain = $100 − $60 − $20 = $20
- The worker keeps only one fifth of the extra earnings
- A high combined withdrawal rate can weaken incentives and contribute to a poverty trap
Disposable-income gain = $100 − $60 − $20 = $20 The worker keeps only one fifth of the extra earnings A high combined withdrawal rate can weaken incentives and contribute to a poverty trap
Look for these in your work
- Disposable-income gain = $100 − $60 − $20 = $20
- The worker keeps only one fifth of the extra earnings
- A high combined withdrawal rate can weaken incentives and contribute to a poverty trap
Two households receive equal cash income, but one faces substantially higher disability-related costs. Explain why equal income does not settle whether the result is equitable.
Give me a hint
Separate sameness of the transfer from differences in need and usable resources.
Compare my reasoning
- The cash outcome is equal
- The households have different needs and costs
- Equity depends on a fairness judgement about the resources each can actually use
The cash outcome is equal The households have different needs and costs Equity depends on a fairness judgement about the resources each can actually use
Look for these in your work
- The cash outcome is equal
- The households have different needs and costs
- Equity depends on a fairness judgement about the resources each can actually use
A country defines relative poverty as income below 60% of its median. If median income rises while one household’s income is unchanged, explain how its relative-poverty status may change.
Give me a hint
Compare the fixed household income with a threshold tied to the median.
Compare my reasoning
- The threshold rises with median income
- The household’s income stays fixed
- It can fall below the relative line even if its real income did not decline
The threshold rises with median income The household’s income stays fixed It can fall below the relative line even if its real income did not decline
Look for these in your work
- The threshold rises with median income
- The household’s income stays fixed
- It can fall below the relative line even if its real income did not decline
Compare one strength and one limitation of universal benefits with means-tested benefits.
Give me a hint
Consider who receives support, targeting and administration.
Compare my reasoning
- Universal benefits can avoid an income-eligibility cliff and reach people who do not claim means-tested support
- They cost more if paid broadly
- Means tests target limited funds but can create stigma, non-take-up and high withdrawal rates
Universal benefits can avoid an income-eligibility cliff and reach people who do not claim means-tested support They cost more if paid broadly Means tests target limited funds but can create stigma, non-take-up and high withdrawal rates
Look for these in your work
- Universal benefits can avoid an income-eligibility cliff and reach people who do not claim means-tested support
- They cost more if paid broadly
- Means tests target limited funds but can create stigma, non-take-up and high withdrawal rates
Common mistakes
- Treating equality and equity as synonyms or assuming redistribution has one inevitable effect on efficiency.
What can you explain now?
What makes relative poverty different from absolute poverty?
Compare with the explanation
It compares resources with living standards typical in a society
A relative threshold moves with a reference such as median income.
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Make it stick
Before moving on, explain the central idea in equity, poverty and redistribution and state one condition that could change its effect.
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