4.2 Poverty and inequality Flashcards
What is absolute poverty?
When a person has insufficient resources to meet basic human needs, e.g. food, shelter, clothing.
What is relative poverty?
Where someone is living on an income below a threshold relative to the rest of the country.
How is absolute poverty measured?
If someone is living on US$1.90 per day.
How is relative poverty measured?
People falling below 60% of median income of a country are said to be in relative poverty.
State two issues with the concept of relative poverty:
It is highly subjective.
It cannot be used to make international comparisons.
State one other measure of poverty aside from absolute and relative:
The United Nations Human Poverty Index - uses two indices HPI-1 for the poorest countries and HPI-2 for more developed countries. They are both composite measures that take into account components such as life expectancy and income rates.
State four factors that cause changes in absolute and relative poverty:
Level of unemployment.
Health and education.
The state of the economy.
Distribution of income.
What is income inequality?
Refers to the unequal distribution of earnings between individuals.
What is wealth inequality?
Refers to the difference in the stocks of assets owned by individuals.
What is the Lorenz curve?
A graphical relationship of income distribution.
Draw the ‘Lorenz curve’:
Which line on the Lorenz curve indicates perfect equality?
The line at 45 degrees.
What is the Gini coefficient?
A number indicating income inequality based on the Lorenz curve with 0 indicating perfect equality and 1 representing perfect inequality.
How is the Gini coefficient calculated?
A / (A + B)
State four causes of income and wealth inequality within a country:
Differences in education/training.
Strength of trade unions.
Level of welfare benefits.
The progressiveness of the tax system.
State four causes of income and wealth inequality between countries:
Natural resources.
Geography.
Degree of political stability.
The amount of FDI attracted.
What does the Kuznets cure demonstrate?
How inequality varies with income per capita:
When an economy is at early stages of development and primarily agricultural, inequality is low.
Industrialisation causes inequality to increase to a point and then at some point decrease.
Despite this, in the 30 years before the financial crisis there was evidence that inequality in advanced economies was increasing.
What is a capitalist economic system?
Essentially a free market economy in which resources are owned by the private sector and prices are determined by supply and demand.
How may a capitalist economic system contribute to inequality?
The owners of the factors of production are likely to have far greater incomes and stocks of assets compared with their employees.
