4.2 Poverty + Inequality Flashcards
1
Q
what is meant by absolute poverty
A
when someone doesn’t have the needs to afford basic necessities e.g. food + water
WORLD BANK: less than $2.15 a day
2
Q
what are the factors affecting absolute poverty
A
- rapidly rising population -> increased demand for limited resources -> less availability per person -> reduces living standards + more pressure on public services -> increased unemployment (increased labour supply) -> increased informal housing + economies (low-paying jobs)
- lack of infrastructure -> less access to quality education + healthcare -> poor human capital development -> less skilled + healthy workforce -> poor living conditions e.g. lack of clean water
- primary product dependency
- corruption
- natural disasters
3
Q
what is meant by relative poverty
A
individuals who has income below 60% of median incomes in a particular country
4
Q
factors affecting relative poverty
A
- job insecurity + part-time work -> e.g. zero-hour contracts -> less disposable income + overall earnings -> periods of unemployment/underemployment -> less opportunities for career development
- economic inactivity -> due to long-term sickness, disabilities -> rely on benefits
- old age -> pension incomes exceed average incomes
- regressive taxes e.g. indirect taxes
- technological changes + job displacement -> automation and AI reduce demand for low-skilled workers -> leading to structural unemployment
5
Q
what are some ways to reduce absolute/relative poverty
A
- improving infrastructure -> e.g. improving roads + schools -> reduces travel time + geographical immobility of labour -> reduced transportation + transaction costs -> stimulates eco. growth -> more employment -> better living standards
- EVAL: funding constraints, time lag, regional inequality, env. degradation
- raising NMW -> inc disposable income -> reduces income gap -> Lorenz curve shift closer to line of equality -> inc AD -> +ve multiplier -> eco. growth -> improving work incentives -> inc labour force participation
- EVAL: inc labour costs -> less DFL; inflationary pressures; people may save over spending (higher MPS)
- healthcare + education -> better health/improved skills -> improvement in human capital -> more labour force participation -> higher wages
- EVAL: time lag, quality of services is not accounted for, SR vs LR
6
Q
causes of inequality
A
- unequal wages -> lack of education/training -> low-skilled industries get paid less
- rise in part-time/temporary jobs -> more availability ocmpared to full-time jobs -> inc underemployment
- inhertiance + wealth distribution -> person who inherits wealth + assets has more opportunities
- low benefit payments
- growth in technology -> machinery will replace jobs -> stagnant/decr wages -> lower DFL but higher SFL (surplus)
- regressive taxes e.g. indirect taxes
- outsourcing + offshoring; geopolitical factors
7
Q
difference between wealth and income
A
INCOME:
- flow of earnings i.e. from employment + investment
WEALTH:
- stock of assets; what you own
8
Q
why is inequality desirable (include evaluation)
A
-
incentivises hard work + innovation -> people work harder to pursue better education + innovation -> potential for higher earnings + higher living standards -> drives eco. growth
EVAL: high inequality -> social unrest + crime; poorer healthcare -> low pay acts as a disincentive to seek employment - reflects differences in talent + effort -> however, it is not always based on merit
-
incr tax revenue through progressive tax -
-> wealthy pay a higher percentage -> HOWEVER, may lead to tax avoidance + brain drain (Laffer Curve)
9
Q
how to correct inequality
A
- trickle down effect -> when the rich get richer, the poorer may benefit
- state provision of healthcare + education
- progressive taxation
- NMW
- economic growth
EVAL:
- may reduce incentive to work
- NMW may lead to incr unemployment
- tax may lead to brain drain -> less tax revenue
