4.2.1 - Absolute & Relative Poverty

Question 1

What Is Absolute Poverty?
(3 Points)

Answer 1

~ Where incomes earned are below are certain threshold, leaving individuals unable to afford basic sufficient necessities to maintain life.

~ More confined to developing countries, but still can occur in developed countries.

~ 2022 -> Below $1.90 was considered absolute poverty.

Question 2

What Is Relative Poverty?
(4 Points)

Answer 2

~ Incomes earned by a household, is less than the median household income in the economy.

~ Those who cannot afford to buy goods which they need to buy in order to not be considered poor. E.g. Mobile phones.

~ Main form of poverty in developed countries.

~ UK defines relative poverty as households that are living with less than 60% of the median household income.

Question 3

What Does Equity Mean In Economics?

Answer 3

Fair distribution of income.

Question 4

What Does Equality Mean In Economics?

Answer 4

Equal distribution of income.

Question 5

What Are The Causes Of Poverty?
(7 Points)

Answer 5

~ Unemployment.

~ Poor education and skills.

~ Poor health and healthcare.

~ Wage differentials.

~ Born into poverty or raised by a single parent.

~ Tax cuts for the well off.

~ Subsistance agriculture.

Question 6

Describe ‘Unemployment’ As A Cause Of Poverty
(2 Points)

Answer 6

~ During a recession through cyclical unemployment as there is a lack of AD, meaning lots of job losses and loss of incomes.

~ Through structural unemployment, through a mismatch of skills making it hard to get another jobs if there isn’t necessary training.

Question 7

Describe ‘Poor Education & Skills’ As A Cause Of Poverty

Answer 7

Those that lack the education and qualifications to have a high enough MRP, can’t access higher paying jobs in the economy.

Question 8

Describe ‘Poor Health & Healthcare’ As A Cause Of Poverty
(2 Points)

Answer 8

~ Limits productivity and earning potentials.

~ Limits the amount and kind of jobs people can work.

Question 9

Describe ‘Wage Differentials’ As A Cause Of Poverty

Answer 9

The bigger the wage differential between the high and low paid professions, the greater the relative poverty.

Question 10

Describe ‘Tax Cuts For The Well Of’ As A Cause Of Poverty
(2 Points)

Answer 10

~ Increases the divide between the rich and the poor.

~ Increases relative poverty.

Question 11

Describe ‘Subsistence Agriculture’ As A Cause Of Poverty
(2 Points)

Answer 11

~ Children would have been raised to work on farms in developing economies.

~ Not really having any knowledge of other jobs.

Question 12

What Are The Problems With Poverty?
(3 Points)

Answer 12

~ Pressure on the welfare system.

~ Increased crime rates.

~ Loss of LR potential output for the economy, as there is low consumption, low incentives.