2.12.1 The market’s inability to achieve equity Notes

1. In an income context, equity refers to fairness or justice in income distribution, while equality refers to everyone receiving the same income.
2. In most societies, equity is interpreted as reducing extreme inequalities in income and wealth, as significant disparities are often perceived as unfair.
3. However, the free market often fails to ensure equity.

How the free market causes inequalities

While the free market system promotes efficiency and innovation, it can result in significant inequalities in income and wealth. This is due to several factors:

1. Resource ownership:
   1. In a free market economy, individuals' income depends on the factors of production (land, labor, capital, and entrepreneurship) they own and can sell in resource markets.
   2. While everyone can provide an equal amount of labour, only a few tend to own the majority of land, capital, and entrepreneurship.
   3. Therefore, those who own more or higher-value resources tend to earn considerably more income (wages, rent, interest, and profits), creating income disparities.
2. Limited access to resources:
   1. Owning some factors of production require large amounts of initial income, and therefore a large part of the population is unable to access them. This difficulty to access high-income-earning resources limits the income-earning potential of many.
   2. Additionally, some individuals, such as the elderly or disabled, may lack access to resource markets or earn low wages, further exacerbating inequalities.
3. Wealth inequality:
   1. Wealth (assets like property, stocks, or savings) is often distributed even more unequally than income.
   2. High-income individuals save and accumulate wealth, whereas low-income individuals may struggle to save at all.