LS10 - Poverty and Inequality

Question 1

Absolute poverty

Answer 1

• a condition where household income is below a necessary level to maintain basic living standards (food, shelter, housing)

Question 2

Relative poverty

Answer 2

• a condition where household income is a certain percentage below median incomes

Question 3

Equity v equality

Answer 3

• equity is the fair distribution of income and equality is the equal distribution of income

Question 4

Income

Answer 4

• a flow of earnings e.g. rent or wages

Question 5

Wealth

Answer 5

• the total amount of assets a person owns

Question 6

Assets

Answer 6

• anything with a market value that can generate income

Question 7

Wealth inequality

Answer 7

• the unequal distribution of assets such as property and savings

Question 8

Income inequality

Answer 8

• the uneven distribution of incomes from wages, rent and profit

Question 9

Measures of inequality

Answer 9

• lorenz curve
• gini coefficient

Question 10

Lorenz curve

Answer 10

• a visual indicator of income inequality
• a line y = x is drawn to compare to and represents a perfect equality of income distribution

Question 11

Gini coefficient

Answer 11

• takes the visual indicator and transforms it into a mathematical indicator
• gini coefficient = (section A) / (section A+B)
• section A is the total area between the lorenz curve and the line of total equality
• section B is the total area beneath the lorenz curve
• value ranges between 0 and 1 where 0 is perfect equality and 1 is perfect inequality

Question 12

Using Lorenz curve in an exam

Answer 12

• can show a shift in the lorenz curve closer to income equality as a result of a certain government policy