Final answer:
Income changes can affect poverty and inequality in different ways: rising incomes with a greater increase for high-income workers can widen the inequality gap, while a decrease in incomes that affects high-income workers more can reduce inequality. Better or cheaper products can improve economic welfare, but this depends on the impacts on job loss within sectors.
Step-by-step explanation:
When analyzing how income changes affect poverty and inequality, two scenarios present distinct outcomes. In scenario (a), where incomes rise for both low-income and high-income workers, but more so for the latter, there is an increase in income disparity. Although the poverty levels may decrease due to the rise in low-income workers' earnings, the gap between the wealthy and the poor could widen, potentially leading to greater social inequality.
In scenario (b), where incomes fall for all workers but fall more for high-income earners, the result might be a decrease in income inequality, as the gap between high-income and low-income workers narrows. However, this could also lead to an overall increase in poverty if the income reduction leaves low-income workers unable to support their basic needs.
If consumers gain access to better or less expensive products, the overall economic welfare of a nation may improve, as the gains from increased business profits and higher employee incomes could outweigh the losses experienced by competing firms. Nevertheless, the benefit to society is contingent upon the distribution of these gains and the impact on those who may consequently suffer job losses.