1.7.1 Distribution of Income and Wealth — Practice Questions

Eight original multiple-choice questions on the distribution of income and wealth, written to the style and difficulty of AQA Paper 3 Section A. Every question carries a full worked model answer.

8 questions AQA A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.7.1 Distribution of Income and Wealth revision notes.

1. 1. The key distinction between income and wealth is that income is

   Definition in context

   Select one answer

   A A flow of money over a period, while wealth is a stock of assets at a point in time.

   B A stock of assets at a point in time, while wealth is a flow of money over a period.

   C Always distributed more unequally than wealth in developed economies.

   D Earned only from employment, while wealth is earned only from investment.
   Show model answer

   Answer: A (A flow of money over a period, while wealth is a stock of assets at a point in time.). Income is a flow: wages, rent, interest and profit received over a week, month or year. Wealth is a stock: the value of assets held at a moment in time — property, shares, savings, pensions. The two are linked, since wealth generates income and saved income accumulates into wealth, but they are measured quite differently.

   Why the other options are wrong

   • B — This reverses the definitions. The flow-stock distinction is the standard way to keep them apart.
   • C — In practice wealth is distributed considerably more unequally than income in the UK and most developed economies.
   • D — Income also comes from rent, interest, profit and benefits, and wealth can be inherited or accumulated from saved earnings.

2. 2. A Lorenz curve plots the cumulative percentage of total income against the cumulative percentage of the population. The further the curve lies from the line of perfect equality, the

   Definition in context

   Select one answer

   A Greater the degree of inequality in the distribution.

   B Higher the average income in the economy.

   C Lower the average income in the economy.

   D Smaller the degree of inequality in the distribution.
   Show model answer

   Answer: A (Greater the degree of inequality in the distribution.). The line of perfect equality is the 45° diagonal, along which each 10% of the population receives exactly 10% of total income. A real distribution sags below it, and the further it sags the more unequally income is shared. The Gini coefficient puts a number on that gap: the area between the two lines divided by the whole area beneath the diagonal.

   Why the other options are wrong

   • B — The Lorenz curve says nothing about the level of income, only how it is shared. A rich and a poor country can have identical curves.
   • C — Same point in reverse: average income is not what the diagram measures.
   • D — Less inequality means the curve lies closer to the diagonal, not further from it.

3. 3. A Gini coefficient of 0 would indicate

   Definition in context

   Select one answer

   A An economy with no income at all.

   B Perfect equality, with income shared equally among the population.

   C Perfect inequality, with one person receiving all the income.

   D That the Lorenz curve lies as far as possible from the diagonal.
   Show model answer

   Answer: B (Perfect equality, with income shared equally among the population.). The Gini coefficient runs from 0 to 1. A value of 0 means the Lorenz curve sits exactly on the line of perfect equality, so every share of the population receives an identical share of income. A value of 1 is the theoretical opposite, with one person receiving everything. Real economies fall well between the two — the UK sits around 0.35 for income after tax and benefits.

   Why the other options are wrong

   • A — The measure describes how income is shared, not how much of it there is. An economy with no income would have no distribution to measure.
   • C — Perfect inequality corresponds to a coefficient of 1.
   • D — The curve lying furthest from the diagonal is maximum inequality, again a coefficient of 1.

4. 4. Table 1 shows the Gini coefficient for four countries.
   Using Table 1, income is distributed most equally in

   Data interpretation

   Table 1: Gini coefficient for income in four countries

   Country	Gini coefficient
   W	0.31
   X	0.48
   Y	0.24
   Z	0.39

   Select one answer

   A Country W.

   B Country X.

   C Country Y.

   D Country Z.
   Show model answer

   Answer: C (Country Y.). A lower Gini coefficient means a more equal distribution, because the Lorenz curve lies closer to the line of perfect equality. The lowest figure in the table is 0.24, so income is shared most equally in Country Y.

   Why the other options are wrong

   • A — Country W's coefficient of 0.31 is higher than Country Y's, so its income is less equally distributed.
   • B — Country X has the highest coefficient at 0.48, making it the most unequal of the four — the opposite of what is asked.
   • D — Country Z at 0.39 is more unequal than both W and Y.

5. 5. Which one of the following would be most likely to reduce income inequality in an economy?

   Applied reasoning

   Select one answer

   A A cut in the higher rate of income tax.

   B A fall in the real value of welfare benefits.

   C A rise in the returns earned on financial assets.

   D An increase in the progressivity of income tax.
   Show model answer

   Answer: D (An increase in the progressivity of income tax.). A progressive tax takes a larger proportion of income from higher earners, so making the system more progressive narrows the gap between post-tax incomes. Combined with the spending it funds — welfare payments, public services — it is the main direct route by which governments influence the distribution of income.

   Why the other options are wrong

   • A — Cutting the higher rate leaves top earners with more after tax, widening the gap.
   • B — Welfare payments make up a large share of the income of the poorest households, so a fall in their real value hits the bottom of the distribution hardest.
   • C — Financial assets are held disproportionately by wealthier households, so higher returns on them tend to widen inequality of both income and wealth.

6. 6. Wealth is usually distributed more unequally than income in developed economies. The best explanation is that

   Applied reasoning

   Select one answer

   A Governments do not tax wealth or the income it generates at all.

   B Income is entirely determined by luck rather than by skill.

   C Wealth can be inherited and accumulates over time.

   D Wealthy households receive no income from their assets.
   Show model answer

   Answer: C (Wealth can be inherited and accumulates over time.). Wealth is a stock built up over a lifetime and passed between generations, so differences compound: assets generate income, some of that income is saved and becomes more assets, and inheritance carries the whole position forward. Income is a flow measured over a single period and is compressed by taxes and benefits each year. The result is a substantially more unequal distribution of wealth.

   Why the other options are wrong

   • A — Wealth is taxed in various ways — inheritance tax, capital gains tax, council tax — although less heavily than income in most systems.
   • B — Income depends on skills, qualifications, occupation and hours as well as circumstance. Luck alone would not produce the persistent patterns observed.
   • D — Assets generate rent, dividends and interest, which is precisely the mechanism by which wealth reinforces income inequality.

7. 7. Which one of the following is most often advanced as a benefit of some degree of income inequality?

   Applied reasoning

   Select one answer

   A It ensures that everyone has access to basic necessities.

   B It guarantees that social mobility will increase over time.

   C It maximises total welfare, because a pound is worth the same to everyone.

   D It provides an incentive to work, train and take entrepreneurial risk.
   Show model answer

   Answer: D (It provides an incentive to work, train and take entrepreneurial risk.). The standard efficiency argument is about incentives. If pay did not differ, there would be little reason to acquire difficult skills, take on demanding responsibility, or risk capital in a new business. Some inequality rewards effort and enterprise and so raises output. The counter-argument is that excessive inequality damages growth by wasting talent and weakening social cohesion — which is why this is an evaluation question rather than a settled one.

   Why the other options are wrong

   • A — Access to necessities is an argument for reducing inequality, not a benefit of it.
   • B — High inequality is generally associated with lower social mobility, since opportunity depends more heavily on family background.
   • C — The usual argument runs the other way. Diminishing marginal utility of income implies that a pound is worth more to a poor household than a rich one, which is a case for redistribution.

8. 8. A country's Gini coefficient is unchanged over a decade while average real incomes rise substantially. It follows that

   Applied reasoning

   Select one answer

   A Absolute poverty has certainly increased over the decade.

   B Income inequality has fallen, because everyone is better off.

   C Relative shares are unchanged, though all may be better off.

   D The Lorenz curve has moved closer to the line of perfect equality.
   Show model answer

   Answer: C (Relative shares are unchanged, though all may be better off.). The Gini coefficient measures relative shares, not absolute amounts. An unchanged coefficient means each section of the population still receives the same proportion of total income as before — but since the total has grown, every group can be substantially better off in cash terms.
   This is why absolute and relative measures must be read together. Rising average incomes with a flat Gini would typically reduce absolute poverty while leaving relative poverty broadly unchanged.

   Why the other options are wrong

   • A — Rising real incomes would normally reduce absolute poverty, since more households can afford basic necessities.
   • B — An unchanged coefficient means inequality has not fallen. Everyone being better off is entirely compatible with the same relative distribution.
   • D — A movement towards the diagonal would show up as a lower Gini coefficient. The coefficient has not changed.