4.2 poverty and inequality Flashcards
4.2.1 relative and absolute poverty
define absolute poverty, what does the world bank define it to be
define relative poverty, what is it defined as in the UK, how many people in the uk are in relative poverty
what is the poverty line
-absolute poverty is when people are unable to afford sufficient necessities to maintian life. Can also be defined as those who earn less than $1.90 a day.
-relative poverty refers to peoples incomes in relation to those in their area- peoples inability to afford goods wgich are deemed socially normal (e.g phone). In the UK relative poverty can be defined as those with a nincome of less than 60% of the median household income. around 14m people in the u are in relative poverty.
-the poverty line is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
-the poverty trap affects people on low incomes, it is when tax and unemployments benefits create a disincentive to to look for work or work for longer hours, this is because working longer hours means that they may lose income due to income tax and NI contributions.
4.2.1 relative and ablosulute poverty
Causes of changes to relative/absolute poverty:
what are 3 causes of poverty
as GDP increases, what is expected to happen to absolute poverty
what are the 2 main causes of growth in relative poverty
what are 3 main causes of relative poverty in the UK
-poverty is caused by unemployment, lack of skills and health problems
-as GDP increases it is expected that absolute poverty also decreases, this is assuming that thr government provides support to those who are unable to benefit from a growing economy
-one cause is those on higher salaries seeing greater income growth than those on lower salaries. another cause is a change in government spending and taxation.
-in the UK, 3 main causes are de-industrilisation, growing inequality in wages growth (the wages of the riches are now 170 times the average worker), decline in trade unions ( has left many workers unable to bargain for higher wages).
4.2.2 Inequality
what is income inequality
what is wealth inequality
what is the difference between wealth and income
which of the 2 is more likely to be unevenly distributed, why
what curve can be used to show income inequality,
what does this curve show
what does the straight line represent,
what does the curve represent,
what can be measured from this diagram,
what is its formula
-income inequality refers to the extent to which income is distributed in an uneven manner.
-wealth inequality refers to the unequal distribution of wealth among people or froups within a society.
-wealth is a stock of assets, whilst income is a flow of earnings
-out of the 2, wealth inequality is likely to be greater, this is because assets that make up wealth are accumulated over time.those who are wealthy now can genrate an income from those assets.This accumlates wealth as long as income exceeds expenditure.These can be accumulated via inheritance.
-the lorenz curve can be used to represent income inequality within a society
-the lorenz curve shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have.
-the straight line represents the line of perfect equality, a perfectly equal society would produce at this point
-the lorenz curve shows the actual level of inequality within the economy
-the gini coefficient can be measured from this diagram, it is measured between 1 and 0, the bigger the coefficient, the more unequal income distributon is within a country.
-the formula for the gini coefficient is A/A+B
4.2.2 Wealth and income inequality
what are the 4 causes of wealth/income inequality within a country
what are the reasons for wealth/income inequality between countries
within countries:
-one cause is wages. Some workers earn more than others. the more income an individual recieves, the more they can save and thus the more welth they can build up. Those on higher incomes will be able to build up a stock of assets, whilst those on lower incomes may have to spend most of their money on everyday items like food.
-one cause is wealth levels. those with higher levels of wealth are more able to increase their levels of wealth than those on lower incomes. An example of this is that those with a greater level of wealth may undertake riskier investments that have a greater rate of return.
-one cause is chance. those who bought houses in the right area or bought the right asset/stock will see a huge increase in price, subsequently increasing the persons wealth.
-one cause is age. working adults at the peak of their career will have a greater icome than those who have just started theirs. they would have hhad more of a chance to build up more assets and increase wealth.
between countries:
-less developed countries may have been held back by wars, droughts, famines and eaerthquakes
-developed countries tend to favour each other when trading, negotiating etc. This helps them to develop more than countries who are not involved in the agreements
4.2.2 wealth/income inequality
Impact of economic change and development:
-what was Kuznets hypothesis
-how did piketty discredit this theory
-kuznets hypothesis says that as a society develops and moves from ariculture to industry, inequality arises as the wages of industrial workers rises faster than farmers. Then wealth is redistributed through taxation and government speding and so inequality falls
-piketty discredited kuznets hypothesis by arguing that inequality rises as the country develops as the rate of return on capital grows, so the rich get richer and inequality increases
4.2.2 wealth /income inequality
significance of capitalism:
how does a capitalist economy lead to income inequality
how does a capitalist economy lead to wealth inequality
why is inequality essential for capitalism to work
-one way in which a capitalist economy leads to income inequality is because of wage differentials. wgaes vary as they are based on demand and supply, and demand and supply vary for different jobs.
-one way in which a capitalist economy leads to wealth inequality is that individuals own resources and thus wealth differs based on the assets they own. wealth can be passed on (inherited) or gained through saving.
-inequality is essential for capitalism to work as it provides an incentive for people to work harder, as there is a possibility of having more. without this, people would no try hard or take risks since there is no reward, meaning that the economy will not grow.
