4.2 - Poverty and Inequality

Question 1

Absolute poverty

Answer 1

When people are unable to afford sufficient necessities to maintain life. The UN defines absolute poverty as ‘a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information (less than US$1.90 a day)

Question 2

Relative poverty

Answer 2

When an individual’s income is significantly lower than the average income in their society, making it difficult to maintain an acceptable standard of living. It is measured in comparison to others rather than by an absolute level of income (income of less than 60% of median household income)

Question 3

Poverty trap

Answer 3

When the tax and benefits system creates a disincentive to look for work or work for longer hours. By working longer hours, individuals may find they lose income due to income tax and national insurance contributions as well as losing some income related state benefits

Question 4

Causes of changes in absolute and relative poverty

Answer 4

1. Inequality in wages or unemployment
2. Government policy
3. Disease, malnutrition and other health problems
4. Wars, conflicts and natural disasters
5. Corruption and political oppression
6. Trade unions
7. Economic growth

Question 5

Income

Answer 5

Flow of earnings

Question 6

Wealth

Answer 6

Stock of assets

Question 7

The Lorenz curve

Answer 7

Graphical representation of income or wealth inequality within an economy. It shows the cumulative percentage of income earned by different proportions of the population, helping to illustrate how equally income is distributed

Question 8

The Gini coefficient

Answer 8

Numerical measure of income or wealth inequality within a country. It ranges between 0 and 1 (or 0% to 100%), where 0 (or 0%) represents perfect equality and 1 (or 100%) represents perfect inequality

Question 9

Formula for Gini coefficient

Answer 9

Area A / Area A + Area B

Question 10

Causes of wealth and income inequality within countries

Answer 10

1. Wages
2. Wealth levels
3. Chance
4. Age

Question 11

Kuznets hypothesis

Answer 11

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

Question 12

Capitalism

Answer 12

A society where capital is privately owned and workers are paid wages by private firms. There is minimal government intervention and resources are distributed according to the market