4.2 poverty and inequality Flashcards
what is absolute poverty
Absolute poverty is when people are unable to afford sufficient necessities to maintain life.
world bank dollars quota threshold for absolute poverty
$1.90 per day
how is economic development linked to absolute poverty
the more developed a country, the fewer people in absolute poverty. In developed countries, the government tends to intervene to attempt to provide the necessities.
what is relative poverty
Relative poverty is about people’s income compared to others in their area . Someone is said to be in relative poverty if their income falls below an average income threshold for the economy; they are at the bottom end of the income scale.
what’s another way of defining relative poverty
Another way of defining relative poverty is those who cannot afford to buy goods which they need to buy in order to not be considered poor according to social
norms, for example an electric fridge or mobile phone.
what is relative poverty classed as in the UK.
how many people in the UK live in relative poverty
In Britain, relative poverty is classed as those with an income of less than 60% of median household income (£27,300 in 2017) after deducting household costs. One in 5 people in the UK live below the official poverty line, with 14m people in relative
poverty.
what is the poverty line
The poverty line is the minimum level of income deemed necessary to achieve an adequate
standard of living in a given country.
what can cause poverty
Poverty is caused by unemployment, a lack of skills, health problems and income dependency.
what happens to absolute poverty as GDP increases
absolute poverty decreases.
what are the two main causes of relative poverty
The two main causes of growth of relative poverty are if those on higher salaries see larger income growth than those on lower salaries or changes in government
spending and taxation.
why has relative poverty grown in the UK
There has been growing inequality in wages growth , with the highest paid
jobs seeing their wages increase higher than those on lower wages.
De-industrialisation has increased the number of service sector jobs which
tend to be lower paid.
There has been a growth in underemployment, zero-hour contracts,
part-time jobs and temporary jobs, all of which mean lower wages for workers.
decline of trade unions has lead to less bargaining powers
state benefits have fallen in relative value as taxes have become more regressive
long term structural unemployment has risen.
difference between income and wealth
income is a flow and wealth is a stock.
what’s income inequalitiy
Income inequality
refers to the extent to which income is distributed in an uneven manner.
why is wealth likely to be more unequally distributed than income
Wealth is likely to be more unequally distributed than income because assets that make up wealth can be accumulated over time. People who are wealthy now can generate an income from those assets and as long as income exceeds expenditure,
they are able to build up a stock of assets. This accumulation of wealth can occur over successive generations through inheritance
what is the Lorenz curve
This shows the cumulative percentage of the population plotted
against the cumulative percentage of income that those people have. A perfectly equal society would have a straight line from corner to corner; the degree of the bend
away from that straight line indicates the degree of inequality.
what is the gini coefficient
A/(A+B)- the ratio of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve. It is
measured between 1 and 0 and the bigger the coefficient, the more unequal the
country.c
causes of wealth and income inequality within countries
Wages: Some workers simply earn more than others. This can be because of higher
educational achievements, because they work longer hours or because their skills are more in demand. Those who aren’t in work will have a lower income than others e.g. pensioners or those on benefits.
Wealth levels: Someone who already has a high level of wealth, whether through inheritance or saving, is able to build up larger wealth than those on lower levels of wealth. For example, they may undertake more risky investment which will give a higher rate of return.
Chance: Those who bought houses in the right area or bought the right assets will see a huge increase in the price of their assets and hence an increase in their wealth. They may have been lucky to inherit wealth.
Age: Working adults at the peak of their career will earn a higher income than those who have just started. Those who are older will have had a chance to build up more
assets, although some of this stock may have been used up to pay for retirement.
causes of income and wealth inequality between countries
Some countries have been held back by wars, droughts, famines and earthquakes. Certain social groups may have been excluded and marginalised. Developed
countries tend to favour each other when trading, negotiating etc. and this helps them to develop more than countries who are not involved in the agreements.
what is the Kuznets hypothesis
The Kuznets hypothesis says that as society develops and moves from agriculture to industry, inequality increases as the wages of industrial workers rises faster than
farmers. Then, wealth is redistributed through taxation and government spending and so inequality falls.
why does a capitalist economy lead to income inequality
A capitalist economy leads to income inequality because of wage differentials. Wages vary as they are based on demand and supply, and demand and supply vary
for different jobs.
why is it argued that equality can never be achieved in a capitalist society
It is argued that equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work. Without the incentive
to gain more, people will not try hard or take risks since they have no reason to and this means the economy won’t grow; inequality is essential for capitalism to work.
