Poverty And Inequality- Theme 4

Question 1

What is absolute poverty?

Answer 1

According to world bank, people are considered to be living in absolute poverty if their incomes fall below the minimum level to meet basic needs such as food, shelter, clothing, access to clean water, sanitation facilities, education and information. This minimum level called the poverty line.

Question 2

What is relative poverty?

Answer 2

People considered to be in relative poverty if they’re living below a certain income threshold in a particular country. Therefore concept of relative poverty is:
- subjective
- subject to change
- not comparable between countries 
Relative poverty arises from inequality.

Question 3

What is a measure of absolute poverty?

Answer 3

Absolute poverty based on a set standard that is consistent over time and between countries, referring to the ability of individuals or groups to meet their basic needs.

Question 4

What is a measure of relative poverty?

Answer 4

Relative poverty measured in comparison with other people in the country. Therefore, there will always be some people who are relatively poor in any given country. Relative poverty lines defined in relation to the overall distribution of income or consumption in a country, so if person living below certain income threshold in a particular country, they’d be classified as being in relative poverty.

Question 5

What are the causes of change in absolute and relative poverty?

Answer 5

• aid
• debt relief
• fair-trade schemes
• micro finance schemes
• employment opportunities
• education and training

Question 6

What is wealth inequality?

Answer 6

Wealth is a stock concept. Wealth inequality refers to inequality based on the value of tangible assets eg. Property, shares, works of art.

Question 7

What is income inequality?

Answer 7

Income is a flow concept. Income inequality refers to inequality based on incomes from wages, rent and profit.

Question 8

How does the Lorenz curve measure income inequality?

Answer 8

The Lorenz curve plots the cumulative percentage of the population against the cumulative percentage of total income. The 45° line represents perfect equality such that the poorest 10% of the population would receive 10% if the income, poorest 20% of pop would receive 20% of income and so on. Curved line represents an unequal distribution of income.

Question 9

How does the Gini coefficient measure income inequality?

Answer 9

G= A/A+B
A is area between the diagonal line and the Lorenz curve
B is area under the Lorenz curve
Gini coefficient will have value between 0 and 1, with 0 representing absolute equality and 1 absolute inequality.
Could be expressed as percentage by X100

Question 10

What are the causes of income and wealth inequality?

Answer 10

• education and training
• wage rates
• unemployment
• social benefits
• inheritance

Question 11

What is the impact of economic change and development on inequality?

Answer 11

Inequality often regarded as an inevitable cost associated with economic growth because owners of resources and the means of production will become wealthier relative to workers. However, may be argued that inequality can constraint economic change and development because :

• the very poor will have no collateral and so will be unable to start their own businesses
• absolute poverty could remain high in countries where inequality is high
• those on low incomes will have low marginal propensity to save, so limiting funds available for investment, while those on high incomes may spend a large amount of their incomes on imported goods or may transfer their incomes to other countries.

Question 12

Causes of income and wealth inequality between countries.

Answer 12

Some countries have been held back by wars, droughts, famines and earthquakes. Certain social groups may have been excluded and marginalised. Developed countries tend to favour each other when trading, negotiating etc. and this helps them to develop more than countries who are not involved in the agreements.

Question 13

What’s the significance of capitalism for inequality?

Answer 13

• A capitalist economy leads to income inequality because of ​wage differentials​. Wages vary as are based on demand and supply, which vary for different jobs.
• Individuals also ​own resources and thus wealth differs based on assets they own. Wealth can be passed on or gained through saving of incomes.
• It is argued that equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work. Without the incentive to gain more, people will not try hard or take risks since they have no reason to and this means the economy won’t grow; ​inequality is essential for capitalism to work​.
• A degree of inequality is necessary and desirable, but ​excessive inequality causes problems​ with efficiency and social justice.