H1 Economics - Equity & Policies

Price mechanism is 'fair' as only those who can afford, can obtain the goods.

• True

• False

Answer explanation

False. As price mechanism only allocates resources based on price signals and 'dollar votes', it may price lower-income households out of the market, and deprive them access to essential goods and services such as healthcare and education.

Which of the following are sources of unequal income distribution?

i. Factor owners vs. Labourers

ii. High-skilled vs. Low-skilled workers

iii. Geographical differences.

iv. Structural changes in the economy (e.g. Rise in AI & tech related Sectors)

• (i) & (ii) only

• (ii) only

• (ii) & (iv)

• All of the above

Answer explanation

In economics, unequal income distribution refers to the disparity in the allocation of income among individuals or groups within a society. Here are some common sources of unequal income distribution:

(i) Capital income (Boss) vs. Labour income (Worker)

(ii) Differences in Education & Skills (e.g. high skilled & educated vs. Low-skilled & educated)
(iii) Urban (more jobs in tertiary sectors which are higher paying) vs. Rural (more jobs in primary sectors, low-paying) areas.
(iv) Globalisation and structural changes in the economy such as technological advancement. Changes in the labour market conditions.

What are examples of policy interventions to improve equity? (You may choose more than 1 answer)

• Minimum Wage

• Tax Evasion

• Direct (Progressive) Taxes

• Government Transfers

Answer explanation

Minimum wages (Or progressive wage model) can raise wages of workers in certain sectors (e.g. Security and landscaping) progressively to reduce income disparity between them and workers of other higher paying sectors.

Progressive taxes (marginal tax rate increases as workers earn a higher income) and government transfers (e.g. direct subsidies) comes together. (i.e. Tax the rich, and transfer to the poor).

What is the purpose of direct taxation, specifically personal income tax under a progressive tax system?

• To encourage tax evasion

• To reduce the ability of high-income earners to exercise their dollar vote

• To increase income inequality

• To reduce the disposable income of low-income earners

Under which scheme do lower-income workers receive subsidies for training and up-skilling?

• High-Income Earner Support (HIES)

• Workfare Income Supplement (WIS)

• Wealthy Workers Reward Program (WWRP)

• Luxury Goods Subsidy Scheme

What is one of the contributing factors that can lead to market failure unintendedly?

• Subsidy

• Price Controls

• Direct Provision

• Direct Taxation

What is the main purpose of the government directly providing goods/services in markets performing inequitably?

• To reduce the quality of goods/services

• To promote luxury goods production

• To increase income inequality

• To ensure equal access regardless of income differences

What is a factor that may hinder the effectiveness of subsidies provided by the government for training and upskilling? (You may choose more than 1 answer)

• Potential economic growth

• Financial constraints

• Receptiveness of economic agents

• Quality of Training

Answer explanation

• (i) Receptiveness or perceived relevance: Even if people are aware of the subsidies, they might not perceive the training as relevant or beneficial to their career or business needs. This can occur if the training programs are not well-aligned with the actual skills demanded by the labor market.

• 
  (ii) Time and Resource Constraints: Potential participants, particularly workers and small businesses, may face time and resource constraints that prevent them from taking advantage of these opportunities. For example, workers might not be able to take time off work, or businesses may lack the resources to release employees for training.
  
  These factors can lead to a situation where the subsidies do not reach those who need them most, thereby limiting the potential for upskilling and reducing the overall impact on income inequality and economic growth.