Poverty And Inequality

Question 1

What are the 2 types of poverty?

Answer 1

1) Absolute poverty - A persons income is below what’s needed for basic needs

2) Relative poverty - A persons income falls below a certain level eg EU 60%

Question 2

What are the causes of poverty?

Answer 2

• Unemployment
• Regressive taxation - Low Y workers pay higher marginal rate
• Health issues - more economically inactive
• Low pay
• Level of indebtedness - Higher interest
• Access to public services - education
• welfare system - very limited

Question 3

What are the 2 types of inequality?

Answer 3

• Income inequality - Where incomes are not distributed equally across the economy
• Wealth inequality - Uneven distribution of assets in economy

Question 4

What two ways is Inequality measured?

Answer 4

1) Lorens curve - gap between the curve and perfect inequality

2) Gini coefficient - Uses lorens curve expressed as a figure

= Area A / Area B + A

Question 5

Causes of wealth + income inequality?
(Within and between countries)

Answer 5

Within countries:
• Unemployment
• Differences in skill + education
• Nature of welfare system
• Inheritance laws
• Wage rates

Between countries:
• Natural resources
• Political instability
• Interference from other countries
• Investment in education + training
• Macroeconomic policies - more open

Question 6

What is the significance of capitalism for inequality

Answer 6

• Capitalist economies are generally more unequal
• Owners of productive resources (land+capital) see income rise faster
• Returns on wealth are greater than returns on income
• Wealth generates income