Final answer:
Income is the money received regularly through work or investments, measured over a time period like monthly or annually. Wealth is an individual's net worth, which is their total assets minus debts, representing what they have accumulated over time. Understanding the difference is crucial to measuring wealth versus income inequality.
Step-by-step explanation:
In the context of a market economy like the United States, income refers to the flow of money that a person receives. This can be through work in the form of wages, salaries, commissions, tips, or from returns on investments, like interest from bank accounts or dividends from stocks. On the other hand, wealth represents an individual's net worth, which is calculated as the sum of all assets such as money in bank accounts, investments, pension funds, and the value of real estate, minus any debts such as mortgages and credit card balances. It's important to recognize that income is measured over a period of time, like monthly or annually, whereas wealth is a cumulative measurement at a given point in time.
For example, a retired person relying on a pension or Social Security might have modest income in any given year. However, if they have consistently saved and invested, their accumulated wealth could be significant, despite lower annual income.