poverty and inequality Flashcards
(51 cards)
What is the Lorenz Curve?
A graphical representation of income inequality. A 45° diagonal line represents perfect equality, while the actual Lorenz curve bends below it. The greater the bend, the worse the inequality.
What does the Gini Coefficient measure?
A numerical measure of inequality ranging from 0 (perfect equality) to 1 (maximum inequality).
Formula for the Gini Coefficient?
G = A / (A + B), where A is the area between the Lorenz curve and the equality line, and B is the total area under the equality line.
What is absolute poverty?
lack basic needs like
food
water
shelter
healthcare.
Defined as living on less than $2.15/day (2024).
What is relative poverty?
When a person is poor compared to others in their country, even if they can afford basic needs. Example: $5/day in the U.S. is poor but may be middle-class elsewhere.
What is the Multidimensional Poverty Index (MPI)?
A measure of poverty beyond income, including health, education, and living standards. A person is considered poor if they lack 1/3 or more of these factors.
3 Dimensions of MPI?
- Health (Malnutrition, child mortality) 2. Education (Years of schooling, school attendance) 3. Living Standards (Electricity, water, sanitation, assets).
What is the Poverty Trap?
A cycle where poverty prevents investment in education and health, keeping people poor across generations.
What is the Kuznets Curve?
A theory that inequality rises in early development, peaks, then declines as a country grows richer. Looks like an inverted U (⬆️ then ⬇️).
Why does inequality rise first in the Kuznets Curve?
Industrialization benefits the rich first. Poor people still work in low-paying jobs while urban areas thrive.
Why does inequality fall later in the Kuznets Curve?
Education, social policies (welfare, progressive taxes), and wealth redistribution help reduce inequality over time.
Criticism of the Kuznets Curve?
Some countries stay stuck at high inequality levels instead of moving to the ‘falling’ stage.
What are progressive taxes?
Taxes that increase as income increases (e.g., higher tax rates for the rich to fund social programs).
What is Land Reform?
A policy that redistributes land from wealthy landowners to poor farmers, improving food production and reducing inequality.
Difference between Workfare and Welfare?
Workfare requires work to receive benefits (e.g., public works jobs). Welfare provides cash transfers without work requirements.
Example of a Conditional Cash Transfer (CCT)? Education incentives
Mexico’s Oportunidades Program: Families receive money if kids attend school and get healthcare.
What is the “Cognitive Tax” of Poverty?
Poverty creates constant stress, draining brainpower and leading to worse decision-making.
Real-life example of the Cognitive Tax?
Indian farmers performed worse on IQ tests before harvest (when broke) vs. after harvest (when they had money).
Why does extreme inequality harm economic growth?
- Less spending by the poor → Lower demand for goods. 2. Social unrest & instability. 3. Limited access to credit & education.
What is the Transfer Principle in inequality measures?
If money is transferred from a rich person to a poor person, the inequality measure should decrease.
How do Lorenz Curves compare different economies?
The country with a more curved Lorenz line has greater inequality than a country with a less curved one.
How do high Gini Coefficients affect social stability?
High Gini = High Inequality → Leads to crime, protests, and political instability.
What is the relationship between growth and poverty reduction?
It depends. Growth reduces poverty if it is inclusive (education, wages rise), but can worsen poverty if only the rich benefit.
What are some unintended effects of poverty measurement?
Headcount poverty measures may cause governments to focus only on people just above the poverty line, ignoring the extreme poor.
