Chapter 2

Question 1

Define inequality

Answer 1

unequal distribution of income, consumption
expenditures, assets (like land, capital, etc.), plus other
socioeconomic factors (like unequal access to education, health,

Question 2

Inequality vs poverty

Answer 2

broader concept than poverty, defined over the

whole population and not only for that part below poverty line

Question 3

measuring poverty

Answer 3

divide population
into certain shares, fifth or tenth (ordered from poor to rich)
and calculate how much of an indicator (income, expenditure…)
is allocated to each population share

Question 4

The Lorenz Curve

Answer 4

Cumulative percentages of
income and recipients are
plotted on the axes

Diagonal: perfect equality

•Lorenz Curve: depicts actual
distribution

•Difference between real
distribution (Lorenz curve)
and hypothetical equal
distribution (diagonal)
measures inequality

•The greater the distance
between the curves, the
higher the degree of
inequality

Question 5

Gini coefficient 0.5-0.7

Answer 5

Countries with highly

unequal distribution

Question 6

Gini Coefficient 0.20 – 0.35

Answer 6

Countries with a relatively

equal distribution

Question 7

Why is inequality again an issue?

Answer 7

High inequality = unfair

inequality amongst the poor = we need to undertsand depth of p[overty and derive policy conclusions

high inequality = undermines social stability and solidarity

Question 8

What does extreme income inequality lead to?

Answer 8

overall savings and investments tend to be lower

– the higher inequality, the less people qualify for loans= poor
people cannot get credit = problems in adequately educating their
children and in starting or extending business

– unequal power distributions - political power and hence economic
bargaining power to the rich = rent seeking behavior = inefficient
allocation of assets/ resources = lower growth

– marginal utility gains are higher for poor people= lower average income and lower economic growth

Question 9

Definition of Poverty

Answer 9

Poverty is pronounced deprivation in well being - world bank!

Question 10

World Bank : definition of well being

Answer 10

1. Command over commodities  someone is poor if she cannot
   fulfill her basic needs (strong monetary view)
2. Can people fulfill the need for specific goods?  food, shelter,
   health care, education… (further dimension of poverty, not single
   monetary view)
3. Amartya Sen (1987): well-being is generated by capability to
   function in society  poverty from lack of this capability 
   inadequate income, education, poor health, insecurity, low self
   confidence, powerlessness, absence of rights such as freedom of
   speech

Question 11

define livelihood

Answer 11

means of living

stresses the way in which a living is obtained

Chambers & Conway (1992): a livelihood comprises the
capabilities, assets and
activities required for a means of living

Question 12

capabilities

Answer 12

what a person can achieve with his or her economic, social, and
personal characteristics

Question 13

list different dimensions of poverty (non monetary factors)

Answer 13

• Malnutrition
• Low income
• Low life expectancy
• Limited access to education and knowledge
• Limited access to drinking water
• Limited access to health services
• No or inadequate shelter
• Low participation in political, economic and social processes

Question 14

Cummins : domains of life satisfaction

Answer 14

 Material well-being
 Health
 Productivity
 Intimacy
 Safety
 Community
 Emotional well-being

Question 15

Maslow’s pyramid

Answer 15

 Physiological needs
 Safety needs
 Belongingness needs
 Esteem needs
 Self-actualisation

Question 16

Advantages of measuring poverty on the basis of income

Answer 16

 Quantitative poverty analysis (based on national
representative samples)

 Consists also of non-monetary income and expenditure
elements (e.g.: household and subsistence production)

Question 17

Disadvantages of measuring poverty on the basis of income

Answer 17

 Survey-designs differ between countries – possible to
compare?
 Aggregated date of households – no separation between men,
women and children
= underestimation of inequality and poverty

Question 18

HDI *Human developmen index

Answer 18

0,79≤HDI≤ 1:
Very High Human
Development

•0,69≤HDI≤0,79:
High Human Development

•0.52≤HDI≤0,69:
Medium Human
Development

•0≤HDI≤0,52
Low Human Development

Question 19

Advantages of HDI

Answer 19

• Inclusion of human capital
• Multi-dimensional
• Good data availability

Question 20

Disadvantages of HDI

Answer 20

• Data collection cumbersome and possibly subject to measurement errors

• School enrollment rates/ years of schooling do not reflect
actual school attendance and
-Quality of education
- Variations in school attendance in case of shocks

• Missing dimensions
(ecological indicators)

• Aggregated values
(No inequality adjustment, Gender specific data)

Question 21

How do you account for vulnerability

Answer 21

• good panel data needed

- depends on wealth conditions

Question 22

Voiclessness

Answer 22

presence of institutions needed to participate in econ, political decision making.

PROBLEM: no standardized measure between countries, therefore difficult to compare across countries.