Inequality and Poverty Flashcards
Equality in economics
Economic outcomes are the same (equal) for different people or social groups
Equity in economics
People should be treated fairly and be given the resources and opportunities to reach their potential
Lorenz curve
Is used to show the extent of inequality of income in the country. It shows how far away the actual distribution of disposable income is from complete equality.
Absolute poverty
A situation that occurs when the income is not enough to meet their basic needs
Relative poverty
A comparative measure based on the standard of living in a country
How is absolute poverty measured?
Measured using the world banks international poverty line which is $2.15 USD a day
How is relative poverty measured?
Is set within a country as a percentage of the median income of a country.
Multidimensional poverty index
A composite indicator that measures a number of dimensions of poverty - they need to be deprived in at least 1/3 of the weighted indicators
What does MPI help with?
Identifying areas that are creating poverty and targeting policies that reduce these causes.
Causes of inequality and poverty
Discrimination, inequality in opportunities, differences in human capital/skills, differences in ownership of capital, globalisation and tech changes
Consequences of inequality and poverty for economic growth and living standards
Can create an incentive to work harder, also causes poverty cycles. Poor living standards for poverty. Causes rich and poor areas
Indirect tax
Taxes on the consumption of goods and services, typically to raise revenue for govt and for negative externalities
Why are indirect taxes regressive?
Those on low incomes spend a high proportion of their income on goods and services, as income increases proportion decreases
Why are company taxes proportional?
The amount of tax per dollar stays the same regardless of the amount of profit
Direct taxes
Income taxes (used to raise govt rev and change AD)
Marginal tax rate
The extra tax paid as a result of one extra dollar of income earnt
Average tax rate
Percentage of income paid in tax (tax/income x 100)
Marginal tax rate
change in tax / change in income
Why are progressive taxes good?
Narrows gap between rich and poor, result in higher govt tax revenue (which they can distribute as welfare)
Why are progressive taxes bad?
Reduced incentive to work, consumers save more money, disencourage entrepreneurs.
Why are transfer payments good?
Alleviates poverty
Why are transfer payments bad?
If they are not targetted, waste of money
How can we invest in human capital?
Universal healthcare, subsidies to low income families, children have access to nutrition, payments for school attendence, training and work experience
Policies to reduce discrimination
Laws to make it illegal to discriminate, laws to ensure equal pay, DEI encouragemnt
