4.2 Poverty and Inequality Flashcards
(19 cards)
define absolute poverty
when people are unable to afford sufficient necessities to maintain life.
includes the severe deprivation of basic human needs
what value has the world bank given to absolute poverty
less than $1.90 daily is considered absolute poverty
how is economic development correlated with absolute poverty
the more developed the country, the less absolute poverty as governments can intervene and provide necessities
define relative poverty
peoples incomes compared to others in the area
exists in societies that are not equal
when is someone said to be in relative poverty
when their income falls below an average income threshold for the economy
how else can you define relative poverty other than inequality
if people cant afford to buy goods that are societal norms such as a fridge or a phone
what is the poverty line
the minimum level of income deemed necessary to achieve a standard of living in a certain country
what is the poverty trap
a situation where people in poverty remain poor, when an economic system requires a large amount of capital to escape poverty which these people cannot obtain
how does the poverty trap affect low income individuals
when the tax system creates a disincentive to look for work or work longer hours.
by working longer hours, individuals may find they lose income due to increased taxes
what is poverty caused by
unemployment, lack of skills, health problems and income dependency
causes of changes in poverty
GDP increases
higher salaries
changes in tax
government spending
inequality of wage growth
low wages
distinction between income and wealth
income is a flow of earnings whereas wealth is a stock of an asset
income inequality definition
the extent to which income is distributed in an uneven manner
why is wealth more likely to be unevenly distributed than income
wealth can be accumulated over time, generational inheritance - since it is an asset, they can appreciate and generate an income.
what is the Lorenz curve
diagram showing the cumulative percentage of the population plotted against the cumulative percentage of income that those people have
describe the lorenz curve (axis, lines)
x axis - cumulative % of population
y axis - cumulative % of income
Line of perfect equality (straight)
lorenz curve (curved - shows degree of inequality)
what is the gini coefficient
A/A+B
A is the area between the curve of perfect equality and the lorenz curve
B is the area under the lorenz curve
the value of the gini coefficient represents the level of inequality - 0 being perfect equality and 1 being total inequality
causes of wealth inequality
wages
wealth levels / generational wealth
chance
age
wars (country)
drought (country)
