Poverty and inequality Flashcards
Define absolute poverty.
Absolute poverty occurs when individuals are unable to consume sufficient necessities to maintain life. Individuals who are homeless or malnourished suffer from absolute poverty. Levels of absolute poverty tend to increase as incomes within a country decrease.
Define relative poverty.
Relative poverty is always present in society. The relatively poor are those who are at the bottom end of the income scale within an economy.
What is the globally accepted measure of absolute poverty?
In October 2015, the World Bank updated the international poverty line to US$1.90 per day.
How can relative poverty be measured?
To measure relative poverty, a poverty line is set which is a percentage of average income. Commonly these poverty lines range from 40%-70% of household income. In the EU, people falling below 60% of median income are said to be at risk of poverty.
Causes of changes in relative and absolute poverty.
1) Absolute poverty tends to fall as GDP rises.
2) The elimination of poverty is dependent on how well the state can reach those at risk of poverty and in need of support.
3) Relative poverty may change because of changes in relative income due to the market mechanism.
4) Changes in government spending and taxation would also affect those living in relative poverty.
Define income inequality.
Income is a flow concept, e.g. the money earned by a person over a period of time. Therefore, income inequality refers to the unequal distribution of earnings between individuals.
Define wealth inequality.
Wealth refers to the stock of assets a person own. So wealth inequality refers to the difference in the stock of assets owned by individuals.
Name two measurements of income inequality.
1) The lorenz curve which shows the income distribution in a country relative to the 45-degree line which represents total equality.
2) The gini coefficienct which is the ratio of the area between the 45-degree line and the Lorenz curve divided by the triangle representing the whole area under the 45-degree line. The higher the value of the gini coefficient, the greater the inequality in the distribution of income.
Causes of income inequality. (4)
1) Wage rates - some workers earn more than others.
2) Non-workers - those who do not work receive lower incomes.
3) Physical and financial wealth - those who own physical and financial assets will generate higher incomes than those who do not.
4) Government policy - the extent to which the government redistributes wealth through taxes and benefits will affect income inequality.
Causes of income and wealth inequality within countries. (7)
1) Globalisation
2) Education, training and skills
3) Wage rates
4) Strength of trade unions
5) Degree of employment protection
6) Social benefits
7) The progressiveness of the tax system
Causes of income and wealth inequality between countries. (8)
1) Natural resources
2) Geography - e.g. landlocked countries suffer in terms of ability to trade internationally
3) History - e.g. impact of colonialism.
4) Degree of political stability.
5) Macroeconomic policies
6) Amount of FDI
7) Degree of trade liberalisation
8) Degree of technological change
What is the impact of economic change and development on inequality?
When an economy is at a low level of development and the economy is primarily agricultural, there is a relatively low level of inequality. However, industrialisation results in increasing inequality up to a point, where inequality will eventually begin to decline once more.
What is the significance of capitalism for inequality?
Typically, those in society who own resources will be in a position to take more risk and will therefore make profit which will enable them to continually increase both their income and wealth. Whereas those who do not own resources will continue to earn the same wages and will not be able to invest in physical assets.
