Question

Markets generally lead to efficient use and allocation of resources, but sometimes at the cost of equity. Many have observed a trade-off between efficiency and equity, or growth in income and wealth inequality as the economy becomes more efficient.

Bill Gates made the following statement: "Yes, some level of inequality is built into capitalism.... It is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good?"

Answer 1

Market based economy or capitalism promotes private ownership and rights. It brings efficiency in allocation of resources and acts as invisible hands to create jobs for the others. But, it brings inequality. The inequality is good as long as it improves the living standard of the people in comparison to their own recent past and make them better now due to the growth in economic activities. For example, an employee earning regular increments, become better-off with each passing year, but inequality increases as owners of the firms are getting wealthier with faster rates, than that of increment level issued to the employees. Though, it goes well as new opportunities are created and more people become employed. It happens due to the efficient allocation of resource.
But, the inequality becomes unacceptable, when the capitalism starts exploitation, does not share the profit and alienates the class of people to let them on their own. It develops class conflicts and anarchy spreads in the society. At this level, the inequality shows its ugly face and the social structure crumbles due to the inequality and this not good for the any economy.