4.2 Poverty and inequality

Question 1

what is absolute poverty?

Answer 1

when a household doesn’t have sufficient income to sustain even a basic standard of living
- varies between different countries
- below $2.15 a day

Question 2

what is relative poverty?

Answer 2

when the level of the household income is considerably lower than the median level of income (60% below median)

Question 3

whats the goal for absolute poverty?

Answer 3

world bank aim of less than 3% of the global population by 2030
- 2022 8% of global population are in extreme poverty

Question 4

what are the main causes of absolute poverty?

Answer 4

• low employment
• lack of basic govt services (education, hospitals)
• high debt
• corruption
• civil war/natural disasters
• savings gaps, can’t save

Question 5

what are the main causes of relative poverty?

Answer 5

more rich
- cuts in top rate income taxes which increases the richs’ disposable incomes
- surging executive pay and high rewards for skilled workers
more poor
- regressive effects of higher food and energy prices on poorer households
- deep market failures in access to good education, health + housing
- declining strength of trade unions in many countries + rising monopsony power

Question 6

what is income?

Answer 6

a flow of money that households receive ➡️ wages, rent, interest payments

Question 7

what are the measures of income inequality?

Answer 7

Lorenzo curve
Gini Coefficient
- A Gini index of 0 represents perfect equality, while an index of 100 is perfect inequality

Question 8

what is the Lorenz curve?

Answer 8

used to plot the cumulative share of income against the cumulative share of the population
- the diagonal line in the graphic below shows a situation of perfect equality of income
the further away from the diagonal line that the Lorenz curve lies

Question 9

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

Answer 9

• big differences in wages and earnings in different jobs/occupations
• the effects of unemployment especially among the long-term
• changes in the taxation of income and wealth
• damaging effects of poor health and nutrition on employment

Question 10

causes of inequality between countries?

Answer 10

• low life expectancy
• low school enrolment rates as families cant afford education
• low access to basic health care and poor nutrition
• limited access to affordable technologies
• lower productivity ➡️ lower wages
• low real spending powers
• low prices for primary commodities

Question 11

what is the Kuznets Inequality Curve?

Answer 11

• suggest that inequality often rises during a phase of rapid industrialisation + urbanization but there may come a point when increased welfare provision, progressive taxes and more balanced income growth across industries might lead to a fall in overall inequality and higher per capita incomes

Question 12

what is the profit motive?

Answer 12

commercial businesses are driven by the profit motive when making decisions ➡️ Profit flow as dividends to shareholders and inequalities of wealth can be widened as investors gain

Question 13

effects of a capitalist labour market?

Answer 13

• in a competitive labour market, wages and earnings are influenced demand and supply
• in theory, there are few limits to the pay that can be achieved
• the majority of people earning low wages are not represented by a trade union

Question 14

what did Thomas Piketty say?

Answer 14

• rising inequality was an almost inevitable consequence of capitalism
• critics say that over many decades capitalism has helped make the world a more equal place ➡️ impact of globalisation driven through increasing specialisation

Question 15

what countries have the highest income inequality?

Answer 15

• south africa - 63%
• Nambia - 61%
• Botswana - 60.5%

Question 16

what countries have the lowest income inequality?

Answer 16

• Azerbaijan - 16.6%
• Ukraine - 25%
• Slovenia - 25.4%