4.2 Inequality Flashcards
Define absolute poverty
It is the absent of basic economic needs.
World bank says when you earn less than $1.90
Define relative poverty
When household income is 60% below the median
Give examples of income as a flow?
Universal credit schemes
Dividends
Rent
Wages
commissions
Give examples of wealth (it is a stock)
Gold
Stocks and shares
Houses
World Inequality Report 2022 states:
52% of income owner by top 10%
75% of wealth is owned by the top 10%
Explain the lorenz curve
cumulative % of total income against cumulative % of population.
The closer the gini coefficient to 0 the more equal the income is to population
What is the straight line and curved line in income inequality diagram called
Straight = perfect equality line
Curve = Lorenz curve
How do you calculate the gini coefficient?
A/A+B
A is the area between perfect equality line and lorenz curve
B is the area between perfect equality line and end of half
What is the gini index
Gini coefficient * 100
What are the limitation of the lorenz curve
- does not take into account the informal economies income
- does not look into wealth inequality
- Developing economies may have low inequality but are equally poor (Cuba/NK)
- data may be unreliable
Micro: may cause negative externalities
What is Kuznets hypothesis
As society develops, inequality will rise as wages of industrial workers become higher than farmers.
However this will correct itself as income is redistributed through taxation and gov spending so inequality falls
How did Piketty discredit Kuxnets theory?
Piketty argues that inequality rises as the country develops as the rate of return on capital grows
r > g
What is Kuznets curve
levels of environmental degradations against GDP per capita
The curve is an inverse quadratic
shows the three stages: pre industrial, industrial and post industrial economies
What determines the relationship of pollution and GDP per capita at different stages of the Kuznets curve
If the economy is using non-renewable or renewable energy sources.
What happens to absolute poverty when GDP increases
Absolute poverty would fall
