4.2- Poverty and Inequality Flashcards
(17 cards)
Define Absolute Poverty?
Absolute poverty occurs when a person has insufficient resources to meet basic human needs. Absolute poverty is defined in terms of the minimum amount of resources a person needs to survive, including food, shelter, clothing, access to clean water, sanitation, education and information.
What is Relative Poverty?
People are classified as relatively poor in a country if their incomes are below the average income. Relative poverty is measured in comparison with other people in a country and varies between countries. People are considered to be in relative poverty if they are living below a certain income threshold in a particular country.
What are the measures of poverty?
1- Absolute poverty: The world bank updated the international poverty line
2- Relative poverty: A poverty line is set which is a percentage of average income. In the EU people falling below 60% of median income are said to be at risk of poverty.
3- Other measures:
- The United Nations Human poverty index.
- Ratio method
What are some problems with the concept of relative poverty?
1- It is highly subjective
2- It changes over time
3- It cannot be used to make international comparisons.
What are causes of changes in absolute and relative poverty?
Absolute and relative poverty might change as a result of changes in a range of factors including:
1- The level of unemployment
2- The level of indebtedness
3- health or education
4- access to public services
5- the state of the economy and real incomes
6- Distribution of income.
What is income inequality?
Income is a flow concept, e.g. the money earned by a person over a period of time. Therefore income inequality refers to the unequal distribution of earnings between individuals.
What is wealth inequality?
Wealth refers to the stock of assets a person owns. Therefore, wealth inequality refers to the difference in the value of stock assets owned by individuals.
What is the Lorenz curve
The lorenz curve is a graphical representation of income distribution.
Illustrate the Lorenz curve.
What is the Gini coefficient?
The Gini coefficient is a numerical calculation of inequality based on the Lorenz curve with a value of 0 being perfect equality and a value of 1 representing perfect inequality
What is the formula for the Gini coefficient? using the graph.
G= A/A+B
Where A represents the area between the diagonal line and the Lorenz curve and B represents the area under the Lorenz curve.
What are the causes of income and wealth inequality, within countries?
A variety of factors may cause inequality within a country, including:
1- Globalisation
2- Differences in education, training and skills
3- Differences in wage rates in different occupations.
4- Strength of trade unions
5- Degree of employment protection
6- The level of welfare benefits
7- The progressiveness of the tax system
What are the causes of income and wealth inequality between countries?
Caused by differences in:
1- Natural resources
2- Geography, e.g. whether a country is land locked or close to large markets
3- History, e.g. the impact of colonialism on a country’s economic growth
4- the degree of political stability
5- Macroeconomic policies
6- the amount of foreign direct investment (FDI) attracted by different countries.
7- The degree of trade liberalisation
8- The degree of technological change.
What does the Kuznets curve show?
The impact of economic change and development on inequality.
Illustrate the Kuznets curve?
What is a capitalist economic system?
A capitalist economic system is usually described as a free market economy in which resources are owned by the private sector and prices are determined by supply and demand.
What is the significance of capitalism for inequality?
Typically the owners of resources will have more wealth and income than workers, so contributing to inequality.
