Poverty and inequality Flashcards
What is absolute poverty?
A situation where individuals cannot afford to acquire the basic necessities for a healthy and safe existence
Anyone living on less than $2.15 a day
Occurs in developing countries
What is relative poverty?
S situation where household income is a certain percentage less than the median household income in the economy
Living with less than 60% of the median household income
Occurs in developed countries
What are the causes of changes in absolute poverty?
- Economic growth increases household incomes
- Government tax and benefit policies can support vulnerable groups
What are the causes of changes in relative poverty?
- Rising asset prices can decrease relative poverty
- Trade liberalisation increases potential market size, which leads to: increase in demand for labour and a wage rise, additional income which has the multiplier effect
- Decreased levels of government benefits can increase relative poverty
What is income inequality?
Refers to the unequal distribution of income to households e.g rent, wages, interest and profit
What is wealth inequality?
Refers to differences in the amount of assets that households own
What are the two main measures of income inequality?
Lorenz curve and Gina coefficient
What is the lorenz curve?
- Visual representation of the inequality that exists between households in an economy
- Data represented in quintiles
- Perfect distribution is not the goal because it would reduce incentive to work
What is the Gini coefficient?
= A / (A+B)
- A represents area between line of equality and lorenz curve
- B represents area under the Lorenz curve
- 0 = absolute equality
- 1 = perfect inequality
How are education, training and skills causes of income and wealth inequality?
- Higher skills level the higher of income
- A country with poor education system will see more inequality
How are trade unions causes of income and wealth inequality?
- Countries with strong trade union membership tend to have higher levels of income
- With low trade union membership, the exploitation of workers through low wages is easier
How are benefit systems causes of income and wealth inequality?
- State pension payments ensure a minimum standard of living to retirees resulting in a more equal distribution of income
- Countries without it have much higher percentage of pensioners living in poverty
How are wage rates causes of income and wealth inequality?
- Purpose of national minimum wage is to improve the equity in the distribution of income
- Without it, more households would be earning less and inequality would increase
How are employment legislations causes of income and wealth inequality?
- The more workers protected by law, the better the income distribution in an economy e.g maternity benefits
How are tax structures causes of income and wealth inequality?
- Progressive tax systems allow all income earners all income earners to contribute to public revenue according to their ability to
- Decreasing taxes on the lower end and increasing them on the upper end would make the system more progressive
How are asset ownerships causes of income and wealth inequality?
- Assets generate income
- The more equal the asset ownership in an economy the less the inequality in income distribution
- Reason for current shared ownership scheme
What is the impact of economic change and development on inequality?
- Industrialisation results in increased inequality as some workers move from the lower productivity, lower paid agricultural sector to higher productivity manufacturing sector, greater inequality with the workers left behind
- Inequality starts to decrease as government spending funded by increased state tax revenue results in higher productivity in the economy
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