4.2

Question 1

What is the distinction between and measures of absolute and relative poverty?

Answer 1

Absolute poverty- living below subsistence- unable to meet basic needs of food, water, sanitation, shelter, and education.
World Bank measures this by number of people living on less than $1.90 per day.

Relative poverty- measured by comparison to the average in the country.
In the UK, those with below 60% of the median income are considered to be in relative poverty.
In the US, a basket of goods which maintains the average standard of living of society is used.

Question 2

What are 7 causes of changes in absolute and relative poverty?

Answer 2

• Inequality in wages or unemployment.
  -Government policy
  -Disease, malnutrition, and other health problems.
  -Wars, conflicts and natural disasters.
  -Corruption and political oppression
  -trade unions
  -economic growth

Question 3

How does inequality in wages or unemployment cause poverty?

Answer 3

• full time jobs aren’t available and so leaves people underemployed, limits how much they an earn.
  -Deindustrialisation in the UK- some jobs have been lost- cause structural unemployment.
  -The highest paid workers have seen their wages increase significantly more than those on lower wages.
  -Larger wage differntials increase relative poverty.

Question 4

How does government policy cause poverty?

Answer 4

• In the UK, taxes have become more regressive over the last 50 years, state benefits have fallen in value.
  -Public sector wages have had low wage increases by gov. This increases relative poverty

Question 5

How does disease, malnutrition and other health problems lead to poverty?

Answer 5

-Heath issues can make it harder to get a job.
-People likely to take a long time off work and it can deter MNCs from investing in a country.
-Can push people into absolute poverty.
-Especially an issue in Sub-Saharan Africa.

Question 6

How does wars, conflicts and natural disasters lead to poverty?

Answer 6

• might push people to leave their homes.
• destroy anything they own. leaving people homeless- absolute poverty.

Question 7

How do trade unions lead to poverty?

Answer 7

• Unions tend to represent lower paid workers. The decline in their power since 1970 has meant that workers have been unable to bargain for higher wages- rise in relative poverty.

Question 8

How does economic growth reduce poverty?

Answer 8

-Growth and development in developing countries means that absolute poverty has fallen.
-The state has more money to provide support for the poorer people.

Question 9

What is the distinction between wealth and income?

Answer 9

Wealth is defined as a stock of assets, such as house, shares, lands, cars and savings.
Wealth inequality is the unequal distribution of these assets.

Income is money received on a regular basis. For example, from a job, dividends.
When income is unevenly distributed across a nation- it means income inequality exists.

Question 10

What is the lorenz curve?

Answer 10

DRAW DIAGRAM
- Shows the distribution of income and wealth in a country.
-The more curved the line- the more inequality-
the straight line shows perfect equality.

Question 11

What is the Gini coefficient and what’s the formula?

Answer 11

• The gini coefficient gives a numerical value for inequality and is derived from lorenz curve.

GINI= A/A+B
0=perfect equality= everyone has same income and wealth
1=perfect inequality- all of the wealth in the country is concentrated in the hands of one individual or household.

Question 12

What are the 5 causes of income and wealth inequality within and between countries?

Answer 12

Inequality in wages
Welfare payments and taxes
Unemployment
Changes to the UK tax system
Inequality between countries

Question 13

How does inequality in wages lead to income and wealth inequality?

Answer 13

• full time jobs aren’t available, leaving people underemployed.
  -Those with a degree earn more.
  -public sector jobs pay less.
  -women earn less than men
  -workers discriminated due to age, disabilities, gender and race.

Question 14

How does welfare payments and taxes lead to income and wealth inequality?

Answer 14

• State pensions and welfare payments increase less than wages.
  -Those on benefits see a smaller real increase in their income compared to those in jobs.
  -This increases inequality.

Question 15

How does unemployment lead to income and wealth inequality?

Answer 15

Can cause relative poverty therefore increasing income inequality.

Question 16

How do changes to the UK tax system lead to income and wealth inequality?

Answer 16

• Indirect taxes tend to be more regressive.
  -Favour the richest households which has led to an increase in income inequality.

Question 17

Inequality between countries:

Answer 17

• Globally there is inequality between countries. Due to social groups being marginalised.
  -Some countries have been held back by wars, droughts, famines and earthquakes leading to poverty.
  -Recently, developing countries have been growing faster and catching up to the developed world.
  -Exploitation of the poor through colonial rule led to more inequality between countries.

Question 18

What does the Kuzents curve show

Answer 18

• Impact of economic change and development on inequality.
  -As a society moves from agriculture to industry it develops, inequality within society increases, since the wages of industrial workers rises faster than the farmers.
  -The wealth is redistributed through government transfers and education.
  -Argued that inequality between countries is a transitional phase, and once nations become economically developed, inequality reduces.

Question 19

What is the significance of capitalism for inequality?

Answer 19

-Capitalism is a society where capital is privately owned and workers are paid wages by private firms. There is minimal gov intervention and resources are distributed according to the market.

-In a capitalist society, entrepeneurs take risks- driven by profit motive. Therefore, inequality is essential to encourage entrepeneurs to take risks.

-Inequality motivates workers, which encourages them to learn new skills and work harder.

-Capitalism leads to monopoly power. Monopolies can exploit consumers with higher prices and exploit consumers with lower wages.

-Essentially, the price mechanism and the free market ignore equality. -can be argued inequality exists, but the degree of inequality may vary between capitalist societys.