Poverty and Inequality Flashcards
Define absolute poverty
When a household does not have enough income to afford basic needs or earns less than $2.15 a day. (2022)
Define relative poverty
When household earns less than the median income within a country.
Household income of less than 60% of median income in the UK.
What are the measures for poverty
A) Income less than $2.15 a day (Only for absolute poverty)
B) Percentage of population of income below 60% of median disposable income in a country
C) Other methods
Gini coefficient (0 = equality)
Palma ratio (richest 10 vs poorest 40)
Lorenz curve
What are causes for changes in absolute poverty and relative
poverty
Anything that affects productivity, standard of living
- Infrastructure
- Education and training
- Aid
What is the distinction between income and wealth?
Define income
Define wealth
Income: the flow of money received each year, happens over time.
Wealth: Stock of all assets added up, stock concept.
Define income inequality
When best paid workers are paid far more than the average workers
Gini coefficient, when it is closer to 0, more or less equal?
more equal
Whats the formula for lorenz curve
area a + b
What causes inequality in economy?
- Corruption
- minimum wage
- Taxes and benefits
- Weak trade unions
Define wealth inequality
When assets are unequally distributed between a population
Explain how rapid industrialization leads to higher inequality?
and how does government eventually decrease inequality?
Relatively small number of business owners tend to benefit more than workers from profit, leading to higher income
They accumulate wealth, and eventually utilise wealth to generate more income, leading to more inequality
Overtime, government imposes more progressive tax system or welfare provision to reduce poverty, reducing the income gap.
Kuznets inequality curve
X Y axis names
Y: gini coefficient
X: Per capita GNI (PPP)
Why is capitalism and inequality essential to economy?
Capitalism is efficient and increases economic growth rapidly as capitalist invest and encourages consumption.
Inequality encourages entrepreneurs to take risk.
Inequality encourages workers to work harder by learning new skills
What are the policies to reduce poverty and inequality?
- Progressive tax system
- Minimum wage
- Better training and education
