Poverty and Inequality Flashcards
What is absolute poverty and relative poverty?
Absolute Poverty: Absolute poverty is a measure of poverty that focuses on a fixed, minimum standard of living necessary for basic survival. It is usually expressed in terms of income or consumption below a certain threshold. Making less than $1.90 a day.
Relative Poverty: Relative poverty, on the other hand, is a measure that considers a person’s income or resources in comparison to the overall standard of living within their society. It is more concerned with inequality and social exclusion.
What are some measures of absolute poverty?
-Poverty Line: A specific income level below which individuals or families are considered to be in absolute poverty.
-Basic Needs Approach: Assessing whether individuals can afford essential goods and services such as food, shelter, education, and healthcare.
-Cost of Basic Needs (CBN): Calculating the cost of a basket of goods and services necessary for basic survival and determining whether individuals can afford it.
What are some measures of relative poverty?
-Income Inequality Indices: These indices, such as the Gini coefficient or the Palma ratio, quantify income distribution and help identify relative poverty. Higher values indicate greater income inequality.
-Percentiles: Relative poverty can be assessed by comparing an individual’s income or wealth to specific percentiles of the income distribution, e.g., the bottom 20% of earners.
-Subjective Measures: Surveys and questionnaires can also be used to assess how individuals perceive their economic well-being relative to others in society.
Causes of change in absolute and relative poverty:
Economic Factors:
-Economic Growth: Increases in a country’s overall income and GDP can reduce absolute poverty by providing more resources to meet basic needs.
-Income Inequality: Rising income inequality can lead to an increase in relative poverty, even in economically prosperous societies.
Social and Demographic Factors:
-Population Growth: Rapid population growth can strain resources and lead to an increase in absolute poverty.
-Age and Gender: Vulnerable groups such as children and women are often more prone to poverty due to factors like limited access to education and employment opportunities.
Government Policies:
Social Safety Nets: Effective social welfare programs can reduce both absolute and relative poverty by providing support to those in need.
Taxation and Redistribution: Progressive tax systems and income redistribution policies can help mitigate income inequality and reduce relative poverty.
Global Factors:
-Globalization: Economic globalization can impact poverty levels through changes in trade, investment, and labour markets.
-Foreign Aid: International aid and development programs can contribute to poverty reduction in developing countries.
What is wealth and Income inequality?
-Wealth refers to the total value of assets owned by an individual or household, including real estate, investments, savings, and possessions.
Wealth inequality measures the unequal distribution of these assets among individuals or households.
-Income represents the flow of money received by individuals or households over a specific period, usually annually.
Income inequality measures the uneven distribution of income among individuals or households.
What are measures of Income inequality?
-The Lorenz curve is a graphical representation of income distribution in a population. It plots the cumulative percentage of income received by the lowest to the highest earners. A perfectly equal distribution forms a 45-degree line (line of equality). The greater the deviation of the Lorenz curve from the line of equality, the higher the income inequality.
-The Gini coefficient is a numerical index that quantifies income inequality.
It ranges from 0 (perfect equality) to 1 (perfect inequality).
A higher Gini coefficient indicates greater income inequality.
It is calculated using the area between the Lorenz curve and the line of equality.
Causes of Income and Wealth Inequality Within and Between Countries:
1-Within-Country Factors:
Education: Disparities in access to quality education can lead to differences in skills and income.
Labour Market: Wage differentials based on skills, experience, and demand for certain jobs contribute to income inequality.
Wealth Accumulation: Those with access to investment opportunities and assets accumulate more wealth over time.
Government Policies: Taxation, social safety nets, and welfare policies can either mitigate or exacerbate inequality.
2-Between-Country Factors:
Globalization: Uneven benefits of globalization, such as outsourcing and offshoring, can widen income disparities between countries.
Historical Factors: Colonialism, trade imbalances, and unequal access to resources have left lasting impacts on global wealth distribution.
Geopolitical Factors: Conflicts, wars, and political instability can hinder development and exacerbate inequality among nations.
Impact of Economic Change and Development on Inequality:
Economic Change:
Economic growth can either reduce or exacerbate inequality depending on how it is distributed.
Inclusive growth policies that target marginalized groups can reduce income inequality.
Development:
Developing countries often experience a Gini coefficient reduction as they progress, but this is not guaranteed.
The focus should be on equitable development, including access to education, healthcare, and infrastructure.
Significance of Capitalism for Inequality:
Positive: Capitalism can incentivize innovation, entrepreneurship, and wealth creation, which can benefit society as a whole.
Negative: Unregulated capitalism can lead to income and wealth concentration among the elite, increasing inequality.
Government interventions and policies play a critical role in shaping how capitalism impacts inequality.
