4.2 Poverty and Inequality Flashcards
Explain the difference between absolute and relative poverty
Absolute - A measure of the amount of people below an absolute threshold
Relative - A measure of the wealth or income inequality within a country
How do we measure absolute and relative poverty
Absolute - If someone earns below $1.90 (PPP)
Relative - If someone earns 60% or below of median earnings in the country
GIve 3 causes of absolute poverty
Homelessness - inability or unwillingness to claim benefits
Wars
Natural Disasters
Give 3 causes of relative poverty
Unemployment
Part-time work rather than Full-time
Low level of welfare benefits
Explain the difference between wealth and income inequality
Wealth - Relates to differences in people’s stock of assets
Income - Relates to differences in people’s income flows from wages, dividends, rent etc
Why is wealth inequality likely to be greater than income inequality
Individuals need some sort of income to survive but many have zero wealth
How can greater wealth inequality lead to greater income inequality
Wealth can create income
What is the GINI coefficient
A numerical measure of inequality based on the lorenz curve
What do values 0 and 1 mean for the GINI coefficient
0 - Perfect Equality
1 - Maximum Inequality
What does the lorenz curve represent
Shows the distribution of income within an economy
Draw a lorenz curve for economy B
should have % of pop and % of income x and y axis respectively, A as a straight line from 0% x to 100% y and economy B convex curve behind A
Explain why inequality is necessary for capitalism
Capitalism relies on the market to allocate resources via incentives
Inequality creates incentives as higher incomes are achieved from hard work and greater skills
Without some level of inequality there would be a lack of incentives to make capitalism work
Give and explain two causes of income and wealth inequality
Disparities in Education - A poorer education leads to worsened career opportunities, workers have lower valued skills and general value so will get lower paid work, depends on education system, depends on types of industry, higher value industry means less jobs for the poor
Differences in Assets/Wealth - Those with existing wealth have opportunities to raise incomes, home ownership allows access to cheaper borrowing, its very difficult to get on housing ladder if poor, depends on tax system and type of assets
GIve and explain two policies used to reduce inequality
Increase in NMW - Raise threshold to millions in lowest paid jobs, greater incentives for unemployed to take paid work. However greater unemployment as business’ cannot pay staff, may not target poorest households
Improved Training and Education for unemployed - Relevant in regions with structural unemployment, improved skills make individuals more employable. However difficulty knowing what training to provide, cost to government and firm + time lags
