5.2 - Poverty Flashcards
What is absolute poverty?
When people do not have enough income to pay for their basic needs.
What is relative poverty?
People lack the minimum amount of income needed in order to maintain the average standard of living society which they live.
What are the characteristics of absolute poverty?
Deprivation of basic needs
Measured using a poverty line
Found in developing countries
Stays the same over time
Can be eradicated
Set at £1.9 a day
What are th characteristics of Relative poverty?
Cannot reach the minimum average living standard
Set at 60% of median household income
Found in developed countries
Cannot be eradicated
Changes with time
What are the causes of poverty?
Low wages represent the intersection of economic growth & human development & are the major cause of poverty
Low wages are usually the result of unemployment, informal employment, a lack of skills, or a primary sector based economy
Education & healthcare cost money & with lower wage levels these are not accessible, resulting in poor human capital. People find it harder to stay well or to recover from illness resulting in lower productivity & shorter life expectancy
Low productivity results in low wages & the cycle continues
How can long term unemployment cause relative poverty?
Long term unemployment have very low incomes and cannot afford items which average households are able to, such as adequate housing or healthcare
Any savings will be used up, which will reduce the ability to escape relative poverty as people can no longer buy goods and services which the average households are able to.
Those who are long-term unemployed may see a deterioration in health or may become depressed. Will reduce ability to find work or motivation to do. Which can result in relative poverty as their living standards cannot be maintained.
How can poverty hinder economic growth?
Less access to education - Means workers are less skilled, which reduces productivity and any supply - side growth
Less access to healthcare - Means workers are more likely to be off work, causing disruptions to the supply chains, which reduces productivity and any supply - side growth
Long term unemployment - Causes workers to lose their skill set, which reduces productivity and any supply side growth
Discourage investment - Because MNC’s are less likely to set up there, which reduces any potential increases in growth from demand side injection
Lower tax revenue - Because people will be spending less, meaning the government has less funds to spend back not the economy to drive demand - side growth
How can improving Education reduce poverty?
Investing in supply-side policy increases the potential output of th country. The production possibility frontier shifts outwards.
Higher education/skills levels means people have higher human capital which increases their productivity and demand for their labour and thus increases their wages
However there is a time lag and it is expensive
How can more Generous state benefits reduce poverty?
Welfare payments given to poorest and vulnerable people in society, included unemployment and disability payments, pensions, heating discounts and public transport subsidies
More spending on welfare payments means that those without jobs have a minimum income spent on education and healthcare make them more productive and earnt them higher wages
However they can become dependant and less likely to look for a job
How can progressive taxation reduce poverty?
Progressive tax system means those who earn higher wages pay higher proportion of tax. This is redistributed through the provisions of free education and health, in order to reduce income inequality.
An increase distribution of income from wealthiest to poorest causing education and healthcare to improve. Workers that have higher human capital and productivity increasing their wages
MNC’s less incentive to progress in the workplace as percentage of disposable income will not increase
How can an increase in national minimum wages improve poverty?
Minimum wages are wages that are set above free market rate and firms not allowed to pay anyone less than the legal rate.
Increase wages allow people to purchase more goods which will improve their own living standards because of derived demand for labour will increase employment opportunities with higher wages.
Increased cost of production causes cost push inflation. Increases unemployment
