Inequality - Consequences and Policies

In this module, the consequences of inequality are discussed, along with potential policies to address it. The concept of diminishing marginal utility is used to argue that a more equal distribution of income can increase economic welfare. High levels of inequality can also reduce overall spending in an economy, as those with higher incomes have a lower propensity to consume. The economic and social costs of poverty are highlighted as well. While some argue that inequality provides incentives for hard work and entrepreneurship, extreme levels of inequality are seen as inequitable. To reduce inequality and alleviate poverty, policies such as welfare benefits, progressive taxation, and minimum wage regulations are suggested. However, the evaluation of these policies should consider opportunity costs and potential distortions in labor markets. It is important to strike a balance between reducing inequality and maintaining incentives for individuals to work.