4.2 Poverty and Inequality

Question 1

What is absolute poverty?

Answer 1

Absolute poverty is when people are
unable to afford sufficient necessities to maintain living standards

Question 2

What is relative poverty?

Answer 2

Relative poverty is people’s income compared to others in the area.

Question 3

What are the causes of poverty?

Answer 3

Unemployment, lack of skills, health problems and income dependency.

Question 4

How does level of GDP relate with level of absolute poverty?

Answer 4

Absolute poverty tends to fall as GDP increases.
assuming state provides support to those who are unable to benefit from growing economy.

Question 5

What are the 2 main causes to increase in relative poverty?

Answer 5

• Higher salary individuals see larger income growth than others e.g rising asset prices
• Change in government spending or taxation

Question 6

Examples of causes of relative poverty

Answer 6

Regressive tax system
- Rich get richer
Inequality in wage growth
Tax cuts for rich
- Rich disposable income increases
Growth in underemployment
- 0-hour contracts, part/temp jobs
Decline of trade unions
- Less wage setting power
Decrease in state welfare benefits
- Poorer recieve less money; increased inequality gap

Question 7

What is the difference between income and wealth?

Answer 7

Wealth is value of money in terms of assets whereas income is flow of earnings.

Question 8

Causes of Wealth & Income Inequality

Answer 8

• Education, training, skills
• Trade unions
• Benefit system
• Pension payments
• Minimum wage
• Employment legislation
• Tax structure
• Asset ownership

Question 9

How does wages create wealth and income inequality?

Answer 9

Some workers earn more than others; due to higher education/longer hours or in-demand skills. Workers on lower wages aren’t able to build up assets.

Question 10

How does wealth level create income/wealth inequality?

Answer 10

Some people may inherit wealth and assets; they are able to build up larger wealth than those with lower wealth. People with assets may be able to generate income from them.

Question 11

What curve is used to measure income inequality?

Answer 11

The Lorenz curve
x - % of income
y - % of population

Question 12

What does the Lorenz curve show?

Answer 12

Lorenz curve shows cumulative percentage of the population against the cumulative percentage of income those people have.

Question 13

What is the Gini Co-efficient?

Answer 13

ini coefficient a measurement of the income inequality of the country.
Ratio of the area under 45° line and Lorenz curve.

Question 14

How does education/training/skills affect wealth/income inequality?

Answer 14

Higher education/skill/training, higher level of income.
Country with poor education system will see greater inequality.

Question 15

How does trade unions affect wealth/income inequality?

Answer 15

Countries with strong trade unions tend to have higher income.
Countries without weaker TUs have lower incomes as exploitation of workers is easier.

Question 16

How does benefit system affect wealth/income inequality?

Answer 16

Countries with benefit system raise income of poorest 20%, closing inequality gap.

Question 17

How does pension payments affect wealth/income inequality?

Answer 17

State pension ensure minimum living for retirees; more equal distribution.

Question 18

How does natoinal minimum wage affect wealth/income inequality?

Answer 18

National minimum wage helps improve income distribution as without it households would be earning less and inequality will increase.

Question 19

How does employment legislation affect wealth/income inequality?

Answer 19

The more workers protected by law, the better income distribution.

Question 20

How does tax structure affect wealth/income inequality?

Answer 20

Progressive tax systems allows high incomes to be taxed higher and low incomes to be taxed less; closes inequality and more equal distribution.

Question 21

How does asset ownership affect wealth/income inequality?

Answer 21

Assets generate income. The more equal the asset ownership, the less inequality.

e.g Council house tenants have right to buy at discounted price.

Question 22

How does capitalism contribute to inequality?

Answer 22

Wage differentials
- Higher wages for higher skills

Question 23

Why does capitalist society never obtain equality?

Answer 23

Capitalist society encourages hard work through possibility of better living standards.
Without incentive to gain more, people will not try hard; economy won’t grow