LS11 - Poverty and Inequality Part 2

Question 1

Causes of poverty

Answer 1

• population growing faster than GDP -> lower GDP per capita
• lack of education/training
• minimum wages (not living wage)
• natural disasters
• corruption
• government policies on taxation and benefits
• primary product dependency
• war

Question 2

Explain how primary product dependency leads to poverty

Answer 2

• developing economies tend to be heavily reliant on exporting primary products e.g. Nigeria and Angola
• Prebisch-Singer hypothesis states this is a problem as over time the TOT for primary commodities declines compared to manufactured products
• therefore, PPD countries will be able to import less and less leading to a fall in living standards

Question 3

Explain and evaluate how corruption leads to poverty

Answer 3

• living standards tend to be lower in corrupt countries because government officials and business owners are more likely to engage in rent seeking
• this is aiming to increase one’s share of existing wealth without creating new wealth e.g. business owners may collude to keep prices high and limit R&D spending
• rises in income and employment will also be limited
• EVAL - corruption appears to surmountable if the gov has an overall growth strategy e.g. China fostered export-led growth strategy resulting in economic development

Question 4

Application (own knowledge) of corruption

Answer 4

• Norway and Russia have similar percentage of GDP dependent on oil but poverty is far worse in Russia partly due to significantly higher levels of corruption by Russian oligarchs
• In 2021, Russia’s 500 richest people controlled more wealth than the poorest 99.8% of the population

Question 5

Effect of natural disasters on poverty

Answer 5

• natural disasters can lead to severe economic disruption and large numbers of fatalities
• therefore FaOPr deteriorate resulting in negative economic growth and falling living standards
• securing food, shelter and employment can become difficult

Question 6

Evaluate effect of natural disasters on poverty levels

Answer 6

• depends on intensity of disaster
• depends on how effectively a country can respond e.g. Japan recovered quickly from tsunami in 2011

Question 7

Income

Answer 7

• flow of earnings measured over a given time period e.g. rent or wages

Question 8

Wealth

Answer 8

• stock concept - total amount of assets a person owns with a market value that can generate income

Question 9

How are income & wealth mutually reinforcing?

Answer 9

• high incomes allow for the purchase of assets which generate more income which lead to more assets etc

Question 10

Reasons for differentials in income & wealth

Answer 10

• age (wealth accumulated over time + more experience -> higher incomes)
• education
• ownership of financial assets + property
• wage differentials (includes state benefits)