Essential definitions

Equality

The extent to which people receive the same economic outcomes.

Equity

A judgement about whether economic outcomes or opportunities are fair.

Income

A flow of receipts measured per period.

Wealth

The value of assets minus liabilities at a point in time.

What is being shared?

Economic inequality means differences in the resources people receive or own. It matters because income and wealth affect access to food, housing, education and security. Two households can have similar wages but very different opportunities if only one has savings or inherited property.

Income is received during a period: wages, rent, interest and profit are examples. Wealth is the value of assets minus debts at a date. Saving income can build wealth, while assets can generate future income. This link helps explain how advantage can accumulate across generations. We will first learn to measure distribution and poverty, then investigate causes and possible policy responses.

Equality and equity ask different questions

Equality describes how similar outcomes are. Equity concerns fairness, which requires a value judgement. Equal payments may seem fair for equal circumstances; different payments may seem fair when needs or responsibilities differ. State the criterion rather than using fair as if it were a statistic.

Equality of opportunity concerns access to education, finance and employment. Equality of outcome concerns the resulting incomes or wealth. A policy can improve opportunity without making every final income equal. Conversely, a short-term transfer may narrow income differences while leaving unequal access to schooling unchanged.

Make a meaningful comparison

Net wealth = assets − liabilities. Both are currency amounts valued at the same date. A household with assets of 300,000 and debts of 50,000 has wealth of 250,000; another with assets of 20,000 and debts of 30,000 has −10,000. Equal annual incomes do not remove this difference in resilience.

For income, distinguish market earnings from disposable income after taxes and transfers. Allow for household size and identify whether wealthy households, informal income or public services are captured. No single number answers every question. The next lessons introduce Lorenz curves and poverty measures so a distributional claim can be checked against suitable evidence.

Apply and evaluate

• A fair policy depends on an explicit fairness criterion and the population being compared.

Real-world application

Sources and applications

• IB Economics guide: first assessment 2024, updated October 2022 · 2022-10