4.2 - Absolute and relative poverty

Question 1

What is absolute poverty?

Answer 1

A situation where individuals/households cannot afford to acquire the basic necessities for a healthy and safe existence

Question 2

What is relative poverty

Answer 2

A situation where household income is a certain percentage less than the median household income in the economy
> people cannot afford the goods and services that are considered ‘normal’ in that country

Question 3

How is absolute poverty measured by the world bank?

Answer 3

• The extreme poverty measure now used by the World Bank is the percentage of the population living on less than $1.90 a day (PPP)
• Absolute poverty is more prevalent in developing countries than developed ones

Question 4

How is relative poverty defined in the UK?

Answer 4

The official UK relative poverty line is household disposable income (adjusted for household size) of less than 60% of median income

Question 5

What is the official poverty line?

Answer 5

An income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs, and so on.

Question 6

What are causes of change in absolute poverty?

Answer 6

• Strong correlation between economic growth and a decrease in absolute poverty
  > Economic growth increases household incomes
• Changes in Government tax and Government spending
  > benefit policies can support the most vulnerable groups in society e.g. children, pensioners, people stuck in long-term unemployment
  > In developed economies, benefit policies can ensure that no household is living in absolute poverty
  > reduction in tax can increase disposable income (however means less government revenue from tax - government spending cuts)

Question 7

What are causes of change in relative poverty?

Answer 7

• Trade liberalisation increases potential market size and output in an economy
  > This leads to an increase in the demand for labour and a wage rise
  > This creates additional income which has a multiplier effect and pulls households out of relative poverty
  > consumers will be able to consume at lower prices - international competition
• Decreased levels of government benefits can lower household income and increase relative poverty
• if those on higher salaries see larger income growth than those on lower salaries or changes in government
  spending and taxation then relative poverty may increase

Question 8

Absolute poverty definition

Answer 8

Households who do not have adequate nutritional intake per day, or do not have adequate shelter or clothing in order to survive. The number of people in countries earning below $1.90 a day adjusted for purchasing power parity (PPP)

Question 9

Relative poverty definition

Answer 9

A measure of poverty that compares a household’s income to the average amount in the rest of society. For example 50% of the median average income in the country

Question 10

What is the UK median income ?

Answer 10

£29,000
- rises as GDP rises