Pack 6: Poverty and Inequality

Question 1

What is absolute poverty?

Answer 1

Number of people unable to afford the basic needs necessary to survive, e.g. food, shelter, water and clothing

Question 2

What is relative poverty?

Answer 2

Measures number of people living below a certain (average) income threshold in a country

Question 3

What is the poverty line?

Answer 3

Official level of income needed to achieve a basic living standard with enough money for necessities

Question 4

What is the poverty gap?

Answer 4

Extent to which an individuals income falls below the poverty line

Question 5

What is the definition of relative poverty in the UK and EU?

Answer 5

The proportion of households on less than 60% of the median income

Question 6

What is a limitation of the measures of poverty?

Answer 6

They do not account for the non-income factors that could effect their living standard, e.g lack of clean water, sanitation and poor healthcare

Question 7

What is income inequality?

Answer 7

Unequal distribution of household or individual income across various participants in economy

Question 8

What is wealth inequality?

Answer 8

Unequal distribution of household or individual wealth across various participants in economy

Question 9

What is the Lorenz Curve?

Answer 9

Graphical representation of distribution of income in a country, shows cumulative % of income against cumulative % of population

Question 10

What is the Gini co-efficient?

Answer 10

Ratio of the area between the Lorenz Curve and the 45 degree line of perfect equality to the total area beneath the 45 degree line of perfect equality

Question 11

what is the range of the Gini co-efficient?

Answer 11

between 0-1

Question 12

What number represents the most extreme inequality with the Gini co-efficient?

Answer 12

1

Question 13

What is Capitalism?

Answer 13

Economic system where resources are allocated through the interaction of demand and supply via the price mechanism, there is private ownership of capital and production inputs used to produce goods and services for profits

Question 14

What are the main methods to reduce poverty and inequality?

Answer 14

~Taxation
~Government spending
~Direct controls
~Regulations and legislation

Question 15

What are direct controls?

Answer 15

Government measures imposed on the price or quantity of a single product or factor of production

Question 16

What are the costs of the policies to reduce poverty/inequality?

Answer 16

~Cost implications
~Reduced incentives
~Long vs Short term
~Distortion of price signals
~Poverty and unemployment traps

Question 17

What is a poverty trap?

Answer 17

Low paid trapped in relative poverty by having to pay taxes at the same time as losing benefits

Question 18

What is an unemployment trap?

Answer 18

Unemployed trapped in unemployment as they are better off living on benefits than they would be doing a low income job

Question 19

What does the Lewis model show?

Answer 19

Shows the level of inequality as the income per capita of a country increases. will always increase to a peak and then fall