4.2 Poverty Flashcards
(15 cards)
What is absolute poverty?
This is when people cannot afford basic necessities, and the world bank defines it as anyone who lives on less than $1.90 a day
What is relative poverty?
In the UK, it is those living below 60% of the median income
What is the poverty line?
The minimum level of income required to achieve an adequate standard of living in a given country
What is the poverty trap?
When working more hours leads to a reduction in income due to increased taxation levels
What are two causes for an increase in relative poverty?
Increase in incomes of those on high incomes
Less government spending, more taxation
What are the six factors affecting the growth in relative poverty in the UK?
Growing income inequality as the rich get richer and the poor get poorer
Deindustrialisation
Regressive taxation with less state benefits
Gig economy with less formal employment
Long term structural unemployment
Less trade union power
What is the difference between income and wealth?
Income is a flow of money, whereas wealth is a stock of an asset
How does increase in wealth lead to an increase in income inequality?
An increase in accumulated wealth overtime leads to greater income inequality as people are able to make incomes off of the assets by leveraging them etc. Furthermore, this can be used to buy more wealth and thus lead to more income
What does perfect inequality and perfect equality look like on the Lorenz curve?
Perfect equality has a equation y=x
Perfect Inequality is perfectly vertical and starts at 100% rich on the x axis
What is the formula for the Gini Coefficient?
A/(A+B) where A is the difference between the countries curve and the perfectly equal curve and B is the difference between the countries curve and the perfectly inequality curve
How is the Gini coefficient measured?
Between 1 and 0, where 1 is perfect inequality and 0 is perfect equality
What causes wealth inequality within countries?
Wages
Wealth Assets
Chance
Age
Marginalization of certain social groups
What causes wealth inequality between countries?
Natural Disasters
Developed countries prefer trading with other developed countries
What is the Kuznets hypothesis and what is the evaluation to it?
The Kuznets hypothesis states that as incomes rise, countries switch from primary to secondary products and as these incomes rise more, the level of taxation on additional income is used for equitable redistribution, thus there is low income inequality. However, Pisketty argued that the rate of return on capital goods is greater than the redistribution of wealth so it would cause income inequality
What is the significance of capitalism in income inequality?
Income inequality is necessary in a capitalist economy because this is the incentive to take risks and to try new things, so without it the economy wouldn’t grow
