4.2 Poverty and Inequality

Question 1

Define absolute poverty

Answer 1

where individuals cannot afford to acquire basic necessities for healthy and safe living

Question 2

Define relative poverty

Answer 2

where household income is a certain percentage less than the median household income in the economy

Question 3

Measures of absolute poverty and relative poverty

Answer 3

gini coefficient and lorenz curve

Question 4

Causes of poverty changes

Answer 4

[In the UK] deindustrialisation caused the service sector jobs to be lower paying
Health issues
Unemployment
Lack of skills
Income dependency

Question 5

Difference between wealth and income

Answer 5

Income is the regular flow of earnings
Wealth is the stock of assets, accumulated over time

Question 6

Define inequality

Answer 6

the unequal distribution of wealth or income

Question 7

Calculating gini coeffiecient

Answer 7

A/(A+B)
The higher the number, the greater the degree of income inequality
0 is perfect income equality
1 would mean an individual receives all the income

Question 8

Explain Lorenz curve

Answer 8

% of cumulative income
% of cumulative population
draw perfect equality
the larger the gap, the more inequality

Question 9

Why would perfect equality be less favoured

Answer 9

It would remove the incentive to work harder as everyone would be receiving the same amount.
Everyone would have the same standard of living, there would be no improvements

Question 10

Causes of wealth inequality

Answer 10

Those with low income do not have any disposable income to save to increase wealth. Therefore inequality of income overtime leads to greater wealth inequality.​

Question 11

Causes of income inequality

Answer 11

• growing numbers of part time workers
• inequalities in wages/earnings (better qualifications can negotiate higher wages)
• tax structure (regressive/progressive)
• physical and financial wealth (generates more income and wealth generates overtime)

Question 12

Impacts of economic change and development on inequality​

Answer 12

inequality increases as the wages of industrial workers rises faster than
farmers. Then, wealth is redistributed through taxation and government spending and
so inequality falls

Question 13

Define regressive taxation and what are the effects

Answer 13

Taking a greater % of income from the poor in comparison to the rich
Inflicts higher tax burden on the poor

Question 14

Define progressive taxation and what are the effects

Answer 14

Taking a greater % of income from the rich in comparison to the poor
This helps to redistribute income and decrease inequality

Question 15

What is the significance of capitalism on inequality

Answer 15

capitalism ~ a society where capital is owned privately and workers are paid privately

Equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work. Without the incentive to gain more, people will not try hard or take risks since they have no reason to and
this means the economy won’t grow; inequality is essential for capitalism to work.