4.2 Poverty and Inequality

Question 1

Income inequality

Answer 1

Incomes and wealth are not equally divided up between the whole population - like in GDP per capita. There are rich and poor.

Question 2

Income redistribution

Answer 2

Government takes income from some households and gives it to others. If taxes are progressive (rates increase as you get richer) and there are transfer payments (benefits) this will reduce inequality.

Question 3

Capitalism

Answer 3

Economic system where free markets allocate resources, capital is privately owned, and economic production is done by firms for profit.

Question 4

Marxism

Answer 4

Alternative to economic/social system developed by Karl Marx in the 19th Century. Marx believed Capitalism exploited workers. In a Marxist system, workers own the means of production (Capital).

Question 5

Lorenz Curve

Answer 5

Measure of inequality in a country. Plots cumulative households against cumulative income. The further away the curve bends from the line of perfect equality (45° line) the more unequal society.

Question 6

Gini coefficient or index

Answer 6

A numerical measure of inequality based on the Lorenz curve. Measured from 0 to 1 (coefficient) or 0 to 100 (index). A higher number equals greater inequality.

Question 7

Absolute poverty

Answer 7

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 a $1.90 a day adjusted for purchasing power parity (PPP).

Question 8

Relative poverty

Answer 8

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.