Pack 6: Poverty and Inequality Flashcards
(25 cards)
What is absolute poverty?
Number of people unable to afford the basic needs necessary to survive, e.g. food, shelter, water and clothing
What is relative poverty?
Measures number of people living below a certain (average) income threshold in a country
What is the poverty line?
Official level of income needed to achieve a basic living standard with enough money for necessities
What is the poverty gap?
Extent to which an individuals income falls below the poverty line
What is the definition of relative poverty in the UK and EU?
The proportion of households on less than 60% of the median income
What is a limitation of the measures of poverty?
They do not account for the non-income factors that could effect their living standard, e.g lack of clean water, sanitation and poor healthcare
What is income inequality?
Unequal distribution of household or individual income across various participants in economy
What is wealth inequality?
Unequal distribution of household or individual wealth across various participants in economy
What is the Lorenz Curve?
Graphical representation of distribution of income in a country, shows cumulative % of income against cumulative % of population
What is the Gini co-efficient?
Ratio of the area between the Lorenz Curve and the 45 degree line of perfect equality to the total area beneath the 45 degree line of perfect equality
what is the range of the Gini co-efficient?
between 0-1
What number represents the most extreme inequality with the Gini co-efficient?
1
What is Capitalism?
Economic system where resources are allocated through the interaction of demand and supply via the price mechanism, there is private ownership of capital and production inputs used to produce goods and services for profits
What are the main methods to reduce poverty and inequality?
~Taxation (More progressive + reducing regressive)
~Government spending (provision of state education, healthcare + infrastructure)
~Direct controls (Price control + min/max wages)
~Regulations and legislation (Anti-discrimination legislation + promoting trade unions)
What are direct controls?
Government measures imposed on the price or quantity of a single product or factor of production
What are the costs of the policies to reduce poverty/inequality?
~Cost implications
~Reduced incentives
~Long vs Short term
~Distortion of price signals
~Poverty and unemployment traps
~It depends (direct controls, education + healthcare and benefits)
What is a poverty trap?
Low paid trapped in relative poverty by having to pay taxes at the same time as losing benefits
What is an unemployment trap?
Unemployed trapped in unemployment as they are better off living on benefits than they would be doing a low income job
What does the Lewis model show?
Shows the level of inequality as the income per capita of a country increases. will always increase to a peak and then fall
What are the causes of income inequality between countries?
~Level and quality of education
~Level and quality of healthcare
~Level of infrastructure and spending
~Wage rates in different occupations
~Strength of trade unions
~Degree of employee protection (national minimum wage, anti-discrimination legislation, labour market reforms)
~Tax system
~Social benefits
~Pensions and age
~Ownership of assets
What are the causes of wealth inequality between countries?
~Changes in asset prices
~Inheritance
~Income levels
What does the price mechanism not consider?
Inequality, no government to redistribute income
What does the Kuznets curve show?
Link between economic change and income inequality
What is the relationship between income per capita and inequality as shown on the Kuznets curve?
Inequality will first increase and then decrease (taxation - redistribution and trickle down effects)
