4.2 Poverty and Inequality Flashcards
What is absolute poverty?
The inability to afford sufficient necessities for basic human needs e.g food, water
What is relative poverty?
The income of people/households compared to the median income (those who cannot afford goods/services considered ‘normal’)
What is classed as relative poverty in the UK?
An income of less than 60% of the median household income
What Is the difference between wealth and income?
- Income: the flow of money a person/household receives in a particular time period e.g wages, salary
- Wealth: the stock of asset which that a person/household owns at a particular point in time e.g houses, pensions, savings
What are the 2 measures of income inequality?
- Lorenz curve
- Gini coefficient
What does the Lorenz curve show?
- The cumulative % of the population plotted against the cumulative % of income
- Line of perfect income equality
What does the Gini coefficient measure and what does the value mean?
- The extent to which the distribution of wealth/income within an economy deviates from a perfectly equal distribution
- The higher the value, the less equal the distribution
Why is wealth more unequally distributed than income?
- Those who are wealthy generate an income from their assets
- As long as income exceeds expenditure, they can build up a stock of assets
- This accumulation of wealth can occur over generations through inheritance
What is the distribution of income?
How wealth is divided between different groups in society e.g on a regional, age, gender basis
How is the Gini coefficient calculated?
Area between diagonal and Lorenz curve/Entire area under diagonal
(A/A+B)
What are 4 causes of wealth/income inequality within countries?
1. Wages (due to higher educational achievements, working hours, derived demand)
2. Age (older adults have more chance/time to build assets compared to young adults, more equal asset ownership=the less inequality)
3. Inheritance (rich families seek to pass on their wealth to the next generation, people born into rich families have high wealth without having accrued it)
4. Tax system (progressive tax system means a more equal distribution of income)
What is a cause of wealth/income inequality between countries?
- Geopolitical factors: e.g wars/conflict, political instability, hinder development and widen inequality
- Globalisation: uneven benefits of globalisation e.g outsourcing, offshoring (relocating operations abroad)
What are 3 causes of relative poverty?
- Rise in long-term unemployment: welfare benefits often lower than income earned, rise in unemployment=rise in relative poverty
- Inequality in wage growth: highest paid
job wages increase higher than lower wages
- De-industrialisation: increased service sector jobs which tend to be lower paid (structural unemployment)
What is the relationship between absolute poverty and GDP?
Absolute poverty tends to fall as GDP increases (government provides support/benefits to less fortunate)
What is the poverty trap?
- When the welfare system creates a disincentive to work for those on low incomes
- Entering high-income employment may result in having to pay higher tax and/or losing benefit payments
What is the poverty cycle?
- Poverty damages childhoods/social mobility 3.g persistent low incomes, inadequate healthcare/education, lack of opportunities
- Leads to poverty being transmitted between generations
Why may wealth inequality be greater than income inequality?
- Wealth is a stock concept, over time the real value of key assets has risen faster than income value
- Inheritance: those with high wealth/assets pass on through generations
What is social mobility?
The movement of individuals/groups from one socio-economic level to another
What are 2 policies for reducing poverty/inequality?
- Progressive taxation (able to redistribute income HOWEVER may disincentivise work/effort, deter inward investment)
- Increased welfare payments (reduces income inequality HOWEVER can lead to welfare dependency)
Why might absolute poverty decrease even though income inequality is rising?
The income of wealthier households is rising faster than the income of the poorer households
What are 2 causes of a change in relative poverty?
- Rising asset prices (Asset prices tend to increase faster than wages/income)
- Trade liberalisation (increases market/output = increases labour demand)
What are 2 causes of a change in absolute poverty?
- Economic growth increases household incomes
- Government tax + benefit policies (support vulnerable groups)
What is the Kuznet’s curve?
A hypothesis describing how income inequality changes as an economy moves through stages of industrialisation and development
Draw:
Kuznet’s curve
