Theme 4 - poverty and inequality Flashcards
What does the world bank consider being in absolute poverty?
Someone living on $2.15 a day or less and is unable to afford basic necessities such as shelter, food and water
How does the world bank define relative poverty?
Lower than the average income of people around you.
In the UK, what is the percentage that puts people into relative poverty?
If someone earns less than 60% of the average income, they are considered to be in relative poverty
What are 3 main factors that influence poverty rates?
- Infrastructure
- AIDS
- Education and training
How can infrastructure influence poverty levels?
Better infrastructure means goods can travel better which increases productivity so costs may fall and foreign workers can move out o poverty
How can education and training influence poverty levels?
Low standards of education means higher unemployment so lower income so higher poverty
Good education, high skilled labour so increased productivity and a fall in poverty
How can Aid influence poverty levels?
An increase in AID means more education so increase in knowledge and skills.
Better healthcare so increased health
Aid is not guaranteed to reduce poverty
What is income inequality?
The highest earner earns a larger income than the rest of the population - more than the average earner.
What does the Lorenz curve show?
Income inequality in a country compared to perfect income equality
Describe what a steeper curve shows and what a stretched curve shows on a lorenz curve
A steeper curve will be closer to perfect income equality and a wider gap would show more income inequality
What is the gini coefficient? How do you calculate it?
A mathematical way of understanding income inequality in a country.
The closer to 1, the more income unequal a country is.
GC = A / A+ B
What is wealth inequality?
This is when the stock of assets is shared unequally between the population
Some major factors influencing inequality include:
- Minimum wage rates
- Assortative mating
- Social benefits and tax
- The R>G hypothesis
- Inheritance
How does a minimum wage rate influence inequality?
Low earners earn more and high earners - business owners - see higher costs so higher price and fall in profits leading to a fall in salary
An improvement in inequality
How dos assortative mating influence inequality?
Talented, successful and rich people marry and have children with talented, successful and rich people which means they can afford better education, better healthcare, resources etc
Worsens inequality
How do social benefits and tax influence inequality?
The UK uses progressive income tax - the more you earn the more you are taxes - which means low earners can earn more income
Higher tax revenue from higher tax earners which increases government spending
Govt spending on benefits and pensions
What is the r>g hypothesis?
People with lots of assets can earn more assets which increases income to buy even more assets.
R = rate of return = 5.3%
G = growth rate = 3.8%
If r increases then people have more income to buy more assets and become wealthier so inequality increases
How does inheritance influence inequality?
Increased wealth means more assets but some people may inherit nothing which cause wealth to remain unchanged.
Someone’s increased wealth means more assets bought
90% of wealth is inherited
What are the advantages of a gini coefficient?
- Can compare income distribution in a population or between countries
- It is easily interpretated
What are some evaluations of the gini coefficient?
- Gini coefficient measures income not wealth as wealth is harder to measure
- It doesn’t consider the underground and subsistence economy
