Advantages (merits) of income inequality in an economy
- It increases efficiency in resource allocation. The major aim of private firms is profit maximization Therefore, they employ efficient techniques of production which leads to the production of more goods and services hence economic growth and development.
- It encourages competition in production. This leads to the production of high quality goods and services at reduced prices hence better standard of living.
- The system facilitates investment, exploitation and utilization of resources in the economy. This increases the production of goods and services hence economic growth and development.
- It leads to the production of a wide range of commodities. This widens the choice to the consumers hence better standards of living through utility maximization.
- Generates government revenue. The rich are taxed more than the poor through progressives taxation and enable government to get more tax revenue.
- Encourages hard work
- Income inequality guarantee labour supply to unattractive jobs like toilet cleaning
- Income inequality encourages geographical labour mobility where individuals move from one place to another in search for better opportunities.
- Encourages better working relation where employees respect their rich employers.
- It helps to create more employment opportunities. The high profits are made by private individuals are used to expand business activities hence creating more employment opportunities.
- It encourages development of entrepreneurial skills in the economy. This is because it promotes individual initiatives and creativity.
- It reduces government expenditure in form of administrative costs. This is because it does not require government officials to monitor the economic activities.
- It encourages technological progress. This is achieved through inventions and innovations due to competition among private individuals, This leads to the production of better quality goods and services. .
- It promotes consumer sovereignty in the economy. This is because consumers are given freedom to decide on what to consume.
- There is no resource wastage during the production process. This is because resources are allocated with the aim of maximizing profits.
CATEGORIES Economics
