1. Chapter 8:
Distribution

2. Overview Income Distribution & Wages and Salaries Income Inequality
Interest Income, Savings, Rental Income & profit
Circular Flow & Gross Domestic Product
Causes of Income Inequality
Government Programs to Reduce Poverty
Who Is Poor?
Regional Income Inequality

3. Income Distribution
Three basic economic questions are: “What to produce?” “ How to produce it?” & “For whom to produce?”
Supply and demand will answer this question in the productive resources market in the form of wages, rent, interest and profit.

4. Wages & Salaries
Increases in demand and decreases in supply cause wages to be higher whereas decreases in demand and increases in supply cause wages to be lower

5. (wages per hour (dollars)
Demand, Supply & Wages of Plumbers in a Canadian City (fig.8.2/8.3) p. 160 30 25
(wages per hour (dollars) 20 D2
Shortage 10
200
300
400
500
600
100
Number of Plumbers

6. A decrease in the demand for plumbers30
Surplus 25
(wages per hour (dollars) 20 15 10 D2
200
300
400
500
600
100
Number of Plumbers

7. A Decrease in the Supply of Plumbers30 25 20
(Wages per hour ($) 15
Shortage 10
200
300
400
500
600
100
Number of Plumbers

8. An increase in the Supply of Plumbers
Surplus S2 30 25 20
(Wages per hour ($) 15 10
200
300
400
500
600
100
Number of Plumbers

9. Factors Affecting Wages & Salaries
Government regulations – minimum wage and fringe benefits
Labour unions
Large employers
Mobility of workers
Barriers to entry – specialized training, discrimination

10. Interest Income
Price paid to a lender for the use of a sum of money over a period of time

11. Savings
Part of income that is not spent on goods and services

12. Rental Income
Payment for the use of a resource, specifically land

13. Income from Profits
What is left over after all the costs have been paid for from the revenue earned by the business (i.e. Total Revenue – Total Costs)
Reward to the entrepreneur for taking the risk of starting a business
Prime motivator to start a business and run it well to satisfy the wants and needs of consumers

14. Circular Flow

15. Gross Domestic Product (GDP)
The total value at market prices of all final goods and services produced in Canada over a period of time (usually a year)
Expenditure approach = Consumption + Investment + Government + (Exports – Imports) or C + I + G + (X - M)
Income approach = wages + rent + interest + profit – (depreciation + indirect taxes)

16. Income Inequality
Lorenz Curve is a graph that helps illustrate the income inequality in a society by contrasting perfect equality with reality within a given economy

17. Causes of Income Inequality
Natural ability
Education, training and opportunity
Property ownership
Ability to influence wages and salaries – labour unions and professional associations
Discrimination – women and minorities
Poor health or physical disability
Region or residence – Ontario higher incomes than Newfoundland
Luck – lottery, accident
Weeks worked
Age

18. Government Programs to Reduce Poverty
Investment in human capital (i.e. education and skill training)
Keep economy operating at a high level to provide jobs
Safety programs to protect workers and universal health care
Old age security pension, unemployment insurance, welfare, C.A.P.

19. Who is Poor?
$15, 067 (in 1992) for a family of four in a mid-sized Canadian city according to Professor Sarlo
House of Commons Conservative sub-committee  menu of basic needs with differences in cost of living from location to location taken into consideration
Statistics Canada Low Income Cut-Off (L.I.C.O.)  spend 70% or more on three essentials (food, clothing, shelter)
12% of families and 30% of unattached individuals below the L.I.C.O. line

20. Regional Income Inequality
Ontario, Alberta and British Columbia wealthier
Maritimes and Quebec poorer