Inequality in the Free Market
The Market’s Inability to Achieve Equity
AO2·HL
Syllabus requirement
Examines how market mechanisms, left unregulated, may lead to unequal distribution of income and wealth across individuals and households.
Assessment objectives
AO2 Application and Analysis
Higher LevelThis topic is assessed at HL.
Summary
This topic explains how a free market can produce unequal distributions of income and wealth and why economists use income and wealth as indicators of living standards. It describes sources of income (wages and salaries, rent, interest and profit), notes that income can be measured at household or national level, and highlights that inequality is generally seen as harmful to social well-being. The text emphasises that unequal outcomes are an inevitable feature of market economies.