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Chapter 8:
Distribution
Overview
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Income Distribution & Wages and Salaries
Income Inequality
Interest Income, Savings, Rental Income & profit
Circular Flow & Gross Domestic Product
Causes of Income Inequality
Government Programs to Reduce Poverty
Who Is Poor?
Regional Income Inequality
Income Distribution
• Three basic economic questions are: “What to
produce?” “ How to produce it?” & “For whom to
produce?”
• Supply and demand will answer this question in the
productive resources market in the form of
wages, rent, interest and profit.
Wages & Salaries
• Increases in demand and decreases in supply
cause wages to be higher whereas decreases in
demand and increases in supply cause wages to be
lower
(wages per hour (dollars)
Demand, Supply & Wages of Plumbers in a
Canadian City (fig.8.2/8.3) p. 160
30
25
20
D2
Shortage
10
100
200
300
400
500
Number of Plumbers
600
(wages per hour (dollars)
A decrease in the demand for plumbers
30
Surplus
25
20
15
10
D2
100
200
300
400
500
Number of Plumbers
600
A Decrease in the Supply of Plumbers
S2
30
25
20
15
Shortage
10
100
200
300
400
500
Number of Plumbers
600
An increase in the Supply of Plumbers
Surplus
30
25
20
15
10
100
200
300
400
500
Number of Plumbers
600
S2
Factors Affecting Wages
& Salaries
• Government regulations – minimum
wage and fringe benefits
• Labour unions
• Large employers
• Mobility of workers
• Barriers to entry – specialized
training, discrimination
Interest Income
• Price paid to a lender for the use of
a sum of money over a period of time
Savings
• Part of income that is not spent on
goods and services
Rental Income
• Payment for the use of a resource,
specifically land
Income from Profits
• What is left over after all the costs have
been paid for from the revenue earned by
the business (i.e. Total Revenue – Total
Costs)
• Reward to the entrepreneur for taking the
risk of starting a business
• Prime motivator to start a business and
run it well to satisfy the wants and needs
of consumers
Circular Flow
• Figure 8.5 p. 167
Gross Domestic Product
(GDP)
• The total value at market prices of all final
goods and services produced in Canada
over a period of time (usually a year)
• Expenditure approach = Consumption +
Investment + Government + (Exports –
Imports) or C + I + G + (X - M)
• Income approach = wages + rent + interest
+ profit – (depreciation + taxes
Income Inequality
• Lorenz Curve is a graph that helps
illustrate the income inequality in a
society by contrasting perfect
equality with reality within a given
economy
Causes of Income
Inequality
• Natural ability
• Education, training and
opportunity
• Property ownership
• Ability to influence wages
and salaries – labour unions
and professional
associations
• Discrimination – women and
minorities
• Poor health or physical
disability
• Region or residence –
Ontario higher incomes
than Newfoundland
• Luck – lottery, accident
• Weeks worked
• Age
Government Programs to
Reduce Poverty
• Investment in human capital (i.e. education
and skill training)
• Keep economy operating at a high level to
provide jobs
• Safety programs to protect workers and
universal health care
• Old age security pension, unemployment
insurance, welfare, C.A.P.
Who is Poor?
• $15, 067 (in 1992) for a family of four in a midsized Canadian city according to Professor Sarlo
• House of Commons Conservative sub-committee 
menu of basic needs with differences in cost of
living from location to location taken into
consideration
• Statistics Canada Low Income Cut-Off (L.I.C.O.)
 spend 70% or more on three essentials (food,
clothing, shelter)
• 12% of families and 30% of unattached individuals
below the L.I.C.O. line
Regional Income
Inequality
• Ontario, Alberta and British Columbia
wealthier
• Maritimes and Quebec poorer