"Discuss the likely impact on the UK economic performance of government policies designed to make income more evenly spread"

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Economics Essay

Part II

Discuss the likely impact on the UK economic performance of government policies designed to make income more evenly spread

The UK government redistributes income because it believes that this will increase economic welfare. Market failure occurs when there is not full efficiency, and an uneven distribution is unlikely to be efficient.

An example of how government policy can affect economic performance is with the law of diminishing marginal utility. This states that “for an individual, the satisfaction derived from consuming an extra unit of a good falls the greater the consumption of a good”. This suggests that taking resources (i.e. Through taxation) from an affluent individual to give to a poor person will lead to an increase in the combined utility of the two individuals. For example, an extra £10 to a poor family will mean more than an extra £10 to a millionaire.

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Government expenditure can be used to alter the distribution of income, making particular use of the law of diminishing marginal utility. One way is for the government to provide monetary benefits to those requiring financial assistance. Another important area of government activity is the provision of goods and services, which aims to give citizens equality of opportunity on society. While this does help to reduce inequality, classical economists would argue that this reduces economic performance. Redistribution reduces the incentives of those in employment to work, thus reducing the incentive of those out of work to find work. High unemployment ...

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This essay is structured well having a clear introduction and conclusion. I would've liked to have seen a diagram, as this shows more analytical skills. Each paragraph adds something to the argument, which is nice to see for a change! Too often in Economics essays do people go off onto a tangent thinking it adds to their argument, when in fact it loses them marks for going off focus. Spelling, punctuation and grammar are strong and the style allows for a convincing argument.

The analysis in this essay is strong, with difficult concepts being used well. I do have a small query with saying "An example of how government policy can affect economic performance is with the law of diminishing marginal utility" as the government doesn't use the law of diminishing marginal utility, but the concept gives a positive reason for a progressive taxation and benefits system. I was impressed to see the Classical argument discussed, but they could make the argument slightly clearer. Simply saying that "redistributing disrupts free market mechanisms, thus making the national economy less efficiency" would represent the Classical view well. A good range of policies are analysed, and I like how the essay explains each step of the mechanism. There should be some evaluation of the extent to which the policies are successful in reducing income inequality, for example making reference to the amount of government expenditure or the size of tax increases. I would note that when making reference to national minimum wages or taxation, you should always talk about increases in these, rather than introductions. If this essay wanted to explore the concept further, the Gini coefficient and Lorenz curve would've made numerical analysis slightly easier. The conclusion needed to be slightly stronger, drawing upon the points made and making a justified judgement. Phrases such s "it depends greatly upon" would've made this stronger.

This essay responds to the question superbly, offering a number of policies to improve income inequality then discussing what effect this will have on microeconomic performance. I was particularly pleased to see an awareness of alternative interpretations, then coming to a justified judgement. Such skills will gain top marks in Economics essays.