4.2 Poverty And Inequality Flashcards
What is absolute poverty?
A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information
Defined by the UN and the World Bank’s threshold of living on less than US$1.90 a day.
What is relative poverty?
When a person’s income falls below an average income threshold for the economy, leading to a lower standard of living compared to others in their area
In the UK, relative poverty is defined as having an income of less than 60% of median household income.
What is the poverty line?
The minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
What is the poverty trap?
A situation where low-income individuals face disincentives to work due to the tax and benefits system.
What are some causes of poverty?
- Unemployment
- Lack of skills
- Health problems
- Income dependency
What happens to absolute poverty as GDP increases?
It tends to fall, assuming the state provides support to those unable to benefit from a growing economy.
What are the main causes of the growth of relative poverty in the UK?
- Growing inequality in wages
- Low wage increases in the public sector
- De-industrialisation
- Growth in underemployment
- Decline of trade unions
- Falling relative value of state benefits
- Rising long-term unemployment
What is the difference between income and wealth inequality?
Income is a flow of earnings, while wealth is a stock of assets.
What does the Lorenz curve illustrate?
The cumulative percentage of the population plotted against the cumulative percentage of income that those people have.
What is the Gini coefficient?
A measure of income inequality calculated as A/(A+B), where A is the area between the 45-degree line and the Lorenz curve.
What factors contribute to income inequality within countries?
- Wages
- Wealth levels
- Chance
- Age
What external factors may contribute to income inequality between countries?
- Wars
- Droughts
- Famines
- Earthquakes
- Exclusion of social groups
What does the Kuznets hypothesis suggest about economic development and inequality?
As society develops, inequality increases initially, then falls as wealth is redistributed through taxation and government spending.
What is Piketty’s argument regarding inequality in developed countries?
That inequality rises as the country develops due to the growing rate of return on capital.
Why does a capitalist economy lead to income inequality?
Due to wage differentials based on demand and supply for different jobs.
What is the argument regarding inequality in a capitalist society?
A degree of inequality is necessary to incentivize hard work and economic growth.
What are the potential problems of excessive inequality?
Issues with efficiency and social justice.
