Poverty and income inequality Flashcards
What is the difference between equity and equality.
Equity is the fairness of the distribution of income, where as equality is having equal of the distribution of income.
Discuss 5 reasons that causes income inequality.
-Education: Higher incomes are often earned by workers with more qualifications and skill.
-Rate of pay: people with a flat pay rate will earn less than those who get paid based on productivity.
-Age and seniority: Older persons tend to be in more positions of management than younger persons.
-Geographical location: Workers in urban areas tend to have higher incomes than those in rural areas because the demand for skilled labor in commercial districts attracts higher wages.
-Discrimination: Minorities tend to earn less in multicultural societies due to ethnic and religious discrimination
Explain some measures the government can take to correct unequal distribution of income.
-Progressive taxation: This is based on ‘vertical equity’, that is, persons who earn more pay a greater share of their income in taxes. (Under horizontal equity those who earn the same amounts should have the same liability/pay the same taxes.
-Price ceiling: Price ceilings are maximum prices for basic necessities to life
-Price floors: These are minimum prices in favor of sellers with fluctuating incomes such as farmers
-These help reduce prices of chosen goods, to make them more affordable to persons earning low incomes, for example, gasoline and food.
Describe direct provision and give examples.
direct provision refers to the government directly supplying a good or service to low income individuals. These may include; education, assistance to single parents, the elderly, school meals, and vocational training.
What is the difference between absolute poverty and relative poverty?
Absolute poverty is when a persons income is low enough where they cannot buy basic necessities like water and food. However relative poverty is when a persons income is lower than the average income in society.
Explain some causes of poverty?
-Unemployment: If someone doesn’t have a source of income then they will struggle to purchase basic necessities making them depend on others.
-Poor education: When someone lacks knowledge and skills to obtain a job they have no source of income and may end up in poverty.
-Poor health: Individuals who are ill will have low productivity which may make it difficult to have an income that is enough for necessities.
-Low wage employment: This means that a worker obtains an income that is not enough to fulfill their basic needs.
What are the costs of poverty?
Lower output caused by unemployed human resources
Government expenditure on poverty alleviation measures, which might otherwise be used for development
Poorer health, due to overcrowding some urban districts
Potentially more criminal activity, and social dislocations such as marriage breakdown and depression.
State the 4 ways to measure poverty.
The basic needs approach
The poverty line approach
The human development index
The headcount ratio
What is the basic needs approach?
this approach to measuring poverty selects a number of commodities that are considered essential needs of individuals or households. It is then determined whether these needs are met or unmet, and households are classified accordingly. Those who have all the items are classified as non-poor. Those who have none of the items are classified as living in extreme poverty.
What is the poverty line approach?
This is a threshold illustrated as a line that helps us determine who is living in poverty and who isn’t. This means that if an individual crosses this line they are poor and unable to supply themselves of basic needs.
What is the Human Development Index?
The Human Development Index (HDI) is a composite index used by the United Nations Development Programme (UNDP) to measure and rank countries based on their achievements in three key dimensions of human development:
o Real GDP per capital: GDP/population
o Life expectancy at birth in years
o Educational attainment as given by both access to education and adult literacy rate. The closer the HDI to one, the higher the level of wellbeing and standard of living.
What does it mean when the HDI is above 0.8, between 0.5-0.79, and below 0.5?
HDI > 0.8 = high human development
HDI (0.5 to 0.78) = medium human development
HDI < 0.5 = low human development
Describe the headcount ratio and how it is calculated.
The headcount method – focuses on counting the number of persons whose income or consumption falls below a predefined poverty line.
It is calculated as follows:
H =Np / N
Where: H – is the headcount ratio
Np – the number of poor individuals (below the poverty line)
N – the total population
