Poverty + Inequality

Question 1

Absolute poverty Vs. Relative poverty

Answer 1

Absolute
- minimum resources a person needs to for basic human needs e.g. food, shelter, clothing, water
–> US $1.90

Relative
- comparison to other people in country
–> live below 60% average income
–> subjective, changes over time, unusable for international comparison

Question 2

What are measurements of poverty

Answer 2

• Absolute poverty –> $1.90 day
• Relative poverty –> below 60% Average income
• UN Human Poverty Index –> life expectancy, literacy rate, long-term unemployment, relative income
• Ratio method –> proportion of income spent on basic needs e.g. food

Question 3

What 5 things can causes a change in poverty levels?

Answer 3

• Level of Indebtedness
• Unemployment
• Health
• State of economy / Real Incomes
• Distribution of Income

Question 4

Income Vs. Wealth

Answer 4

• Income - flow –> Money earned over period of time
  –> Income inequality = unequal distribution of earnings
• Wealth - stock assets a person owns
  –> difference in value of stock of assets by individuals

Question 6

List 6 cause of income + wealth inequality within countries?

Answer 6

• Globalisation
• Education / training
• Strength of Trade Unions
• Difference in wage rates of professions
• Welfare benefits
• Regressive tax system

Question 7

List 5 causes of income + wealth inequality between countries?

Answer 7

• Natural resources
• History e.g colonisation
• Political stability
• FDI
• Trade liberalisation

Question 8

How does Capitalism effect inequality?

Answer 8

Capitalist system
- Resources owned by some / private sector
- Labour sold to owners of resources
- prices determined by S+D
–> owners of resources have more wealth + income than workers –> leads to inequality

Question 9

What is HDI?

Answer 9

Human Development Index

• GDP per capita –> measured at PPP
• Health –> life expectancy
• Education –> years of schooling

Question 10

Advantages (2) + disadvantages (3) to HDI

Answer 10

ad
- Broader measure than GDP –> inc. health + education
- Used for international comparison of development

dis
- Narrow, only measures 3 things
- Only concerned with long-term development outcomes
- Average measure - disguises disparities + inequality

Question 11

What are some non HDI measures of development?

Answer 11

HDI = GDP per capita, Health, education

• Inequality
• Access to clean water
• Internet Access
• Democracy

Question 12

What 6 factors can influence development + growth

Answer 12

• Primary product dependency
• Savings gap
• Debt
• Infrastructure
• Governance e.g. corruption, civil war
• Education

Question 13

Why is primary product dependency an issue for developing countries? (6)

Answer 13

• Economies vulnerable to changing global markets
• Price Fluctuations –> S + D of products inelastic, change in S+D cause large price fluctuation
• Unstable Producer revenue –> caused by Price fluctuation, hard to plan investments
• Protectionism –> other countries placing tarrifs, quotas etc. on developing countries products
• Shortage for domestic consumption –> majority Exported, little for domestic consumption
• Finite supply of raw materials
• Falling terms of trade
  –> Primary products income inelastic, Manufactured income elastic
  –> ↑R. Incomes, D for manufactured ↑ at faster rate than primary
  –> ToT for developing countries↓ compared to developed

Question 14

What is the Savings gap?

Answer 14

• countries with low GDP per capita have low savings ratio –> more income spent
  –> Low finance investment –> low capital accumulation –> low output + low GDP

–> fails to account for FDI, assumes relationship between capital + output

Question 15

What is the Foreign currency gap

Answer 15

• Developing countries have shortage of foreign currency
  Cons
  –> Capital flight - consumers save/ buy shared in foreign countries
  –> Dependent on exports of primary products
  –> Dependent on Imports of manufactured goods

Question 16

Impact of poor governance

Answer 16

• Resources allocated inefficiently
• Gov intervention results in welfare loss
• Deter investment
• Capital flight - save / buy shares in foreign countries

Question 17

What are the categories of strategy to improve growth + development?

Answer 17

• Market-orientated
• Interventionist
• Other

Question 18

What are 4 examples of Market-orientated strategies to improve development + growth?

Answer 18

• Trade liberalisation
  –> remove barriers e.g. tariffs
  –> ↑Trade, ↓Prices, ↑C.S. + ↑FDI
• Promote FDI
  –> trade liberalisation, tax incentives,
• Remove subsidies
  –> can cause inefficient allocation of resources
• Privatisation
  –> ↑Competition + ↑Efficiency

Question 19

What are 5 examples of Interventionist strategies to increase development + growth?

Answer 19

• Development of Human capital
  –> ↑Skills, training etc. –> ↑Productivity
• Protectionism
  –> tariffs, quotas, and Subsidies to domestic producers
• Infrastructure development
• ↑Joint venture
  –> foreign + local owned firm
• Buffer Stock schemes
  –> Min + Max price
  –> buffer stock = stock bought / released when price fluctuates
  –> P too high, constant surplus, P too Low constant shortage

Question 20

What are examples of ‘other strategies’ to increase development + growth?

Answer 20

• Industrialisation

–> Profits made by TNC, sent abroad

• Tourism
  –> Investment by Global companies e.g. hotels, ↑Infrastructure, ↑Employment, ↑Tax revenue, Preservation of Natural heritage
  –> con - Over-dependence, External costs e.g. pollution, Seasonal / low-paid employment, Fluctuation in demand (holidays elastic)
• Development of primary industries
  –> Primary product D income elastic, country has comparative advantage, FDI attracted