Theme 4: Poverty and Inequality Flashcards
Absolute poverty
When a persons daily existence is threatened because they have insufficient resources to meet their basic needs. A person in absolute poverty struggles to afford food, clothing and shelter.
How is absolute poverty measured?
World Banks’ rate of $1.90 a day PPP.
Relative poverty
When a person is poor in comparison to others in their society. Most poverty in developed countries tends to be relative. 2017 16% of the UK population live in relative poverty.
How is relative poverty measured?
In comparison to other people in the country and will vary between countries. In the EU people bellow 60% of median income are said to be ‘at risk of poverty’ and are classed as relatively poor.
What causes changes in absolute and relative poverty?
- Economic growth
- Government benefits policy
- Taxation and wage rate
- Trade and FDI
Wealth inequality
The value in money of assets held by an individual. This might include property, land, money and shares.
Income inequality
The amount of money a person receives over a period of time.
6 cause of income and wealth inequality
- Education and training
- Wage rates
- Ownership of assets
- Tax system
- Trade union representation
- Social benefits
What are the negative impacts of inequality?
- Absolute and relative poverty remain high
- Can restrict economic growth and waste people’s talents.
- As rich get richer they may tend to spend their income on imports. Which leaves the circular flow of income.
- Crime and violence tend to rise.
What does the Lorenz curve display? and draw one.
It is a curved line that sits below complete equality and the further away the line is the further from equality a country is.
What is the Gini coefficient?
A measure of inequality that uses the Lorenz curve to find a numerical representation of inequality.
How do you work out the Gini coefficient?
Area A (space between equality and Lorenz line) / Area A + Area B (area beyond the Lorenz curve)
What is the impact of economic development on inequality?
Initially when economies grow inequality will increase but when the government has the means to redistribute wealth through taxation inequality will decrease.
What benefits does inequality have in free market economies?
- Provides incentives for people to work harder
- Encourages enterprise, creating new businesses and opportunities for people to work.
- Encourages people to work instead of claiming benefits
- May create trickle down effect as the rich get richer they will spend more on goods and services, creating income for the poor.
