4.2 Poverty and Inequality

Question 1

Absolute poverty?

Answer 1

• Household income is below necessary level to maintain basic living standards (food, shelter, housing)

Question 2

Relative poverty?

Answer 2

• Household income is a certain % below median incomes

Question 3

Global changes in absolute poverty since 1990?

Answer 3

• ↑ in Sub-Saharan Africa
• ↓ in South Asia/East Asia/rest of world

Question 4

Income?

Answer 4

• Flow of money derived from factors of production (e.g. rent/wages)

Question 5

Asset?

Answer 5

• Anything with a market value that can generate income

Question 6

Wealth?

Answer 6

• Total amount of assets a person owns

Question 7

Wealth inequality?

Answer 7

• Unequal distribution of assets such as property and savings

Question 8

Income inequality?

Answer 8

• Uneven distribution of incomes from wages, rent and profit

Question 9

Measures of inequality?

Answer 9

• Lorenz curve
• Gini coefficient

Question 10

Lorenz curve?

Answer 10

• Graphical representation of income inequality
• Cumulative share of income earned/cumulative share of income earners

Question 11

Gini coefficient?

Answer 11

• Measures how evenly distributed income is
• 0 –> perfectly distributed
• 1 –> all income goes to 1 person

Question 12

Causes of income and wealth inequality between countries?

Answer 12

• Minimum wages + Wage growth
• Prevalence of low skilled jobs
• Education/skills
• Governance - corruption, policies
• Economic development
• Primary product dependency
• Natural disasters/War

Question 13

Evaluate natural disasters/war causing income and wealth inequality between countries

Answer 13

• Depends on intensity/length of natural disaster/war
• Depends on how effectively country is able to respond (e.g. Japan more effective than Haiti)

Question 14

Causes of income and wealth inequality within countries?

Answer 14

• Age
• Education
• State benefits + tax progressivity
• Ownership of property
• Ownership of financial assets

Question 15

Evaluate age causing income and wealth inequality within countries

Answer 15

• Depends on OAP’s working years, may have worked in high wage sectors

OAP = old age pensioner

Question 16

Evaluate education causing income and wealth inequality within countries

Answer 16

• Some with low levels of education are able to earn high salaries and vice versa
• Type of education matters - humanities/arts less lucrative than STEM subjects

Question 17

Explain the low economic growth and
low inequality point of the Kuznet’s curve

Answer 17

• LEDCs have primary product dependency - income dependent on primary product market - all farmers earn the same so low inequality

Question 18

Explain the increasing inequality section on Kuznets curve

Answer 18

• LEDC experiences economic growth + progresses from agricultural to industrialised = ↑ economic activity = ↑ investment = ↑ influc of rural labour with higher wages = ↑ income inequality

BUT higher wages takes time because need to accumulate skills

Question 19

Explain the turning point on Kuznets curve

Answer 19

• Maximum income inequality at a certain level of per capita income

Certain level of economic growth different for different countries

Question 20

Explain the decreasing inequality section on Kuznets curve

Answer 20

• ↑ in GDP per capita = ↓ income inequality
• Deindustrialisation = ↑ in service sector = ↑ economic growth = income trickles down to lower-income groups = ↑ access to education, progressive taxation (redistribution of income)