2.11 Markets cause inequality

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It is when factors are privately owned and labour is solely paid wages and the market forces of demand supply decide the price
A free market is where there is little to no government intervention and thus is self regulated, consequently only supply and demand affect the prices.
However this can cause inequality

Inheritance; when income and wealth is passed down generation to generation.
This means certain individuals will have huge amounts of wealth ready at their disposal, and thus have easier access to qualitative education/healthcare. Which is inequality of opportunities.
Wealthier people will also have easier access to factors of production like enterprise and capital due to their education[ enterprise] and wealth[capital]. Making it easier for them to earn even more profits.

Main aim of a circular flow of income is to show how in an economy income is generated, spent and distributed. Ideally income generated would be equal to income spent; all money goes back into the economy, however income inequality occurs as certain people have more opportunities and income is distributed unevenly in the economy.

Households are the main supply of factors of production in the circular flow of income, in exchange they get rent, wages and interest[generated income] and spend it on products in the product market[income spent]. However as stated earlier not all individuals and households have the same opportunities to earn incomes.
Firms will purchase the factors provided by households, for which they pay rent, interest and wages. They will make revenue from the sale of their products which will be used to cover costs and rest is profit
The income disparity is caused by the difference in the distribution of reward/sources of income. More skilled means more wages, and certain incomes might not even be possible to earn for some households, like interest from capital.

We said that the ideal scenario is of all generated income going back into the economy. However we can see governments, banks and global markets take away some of this income in form of taxes, saving and imports[leakages] however they also inject into the economy in form of government spending, investments and export revenue.
Government intervenes to reduce the income disparity of the country by using progressive taxation, NMW legislation, providing skilling/reskilling services and regulations.

Progressive taxation can be used to fund social welfare policies/services as more is earned from the wealthier. This works to bridge the income gap.
NMW legislations have already been discussed in how they are beneficial by providing fairer wages for the work labourers do. Bridging the income gap, given its set above current wage equilibrium.
Skilling/Reskilling centers improve the quality and quantity of labour, education is also provided such that all individuals have a more level playing field with the opportunities available to them, and in the future.
Regulations, NMW being an example of this, are done in favor of protecting workers rights, much like what workers unions do. By providing workers with fairer pay, improved working conditions and anti exploitative practicies. It also helps them to get bargaining rights, so workers themselves can fight for their wants.
All these measures provide for a equal playing field for the workers and to reduce income disparity.