Topic 8- Inequality Flashcards
Absolute poverty
problems with definition of absolute poverty
When a person has insufficient resources to meet basic human needs e.g food, shelter clothing
subjective as what a minimum set of resources constitutes depends on value judgement
Relative poverty
Issues with the concept of relative poverty
living on less than 60% of median income. Is measured in comparison with other people in a country and will vary between countries
- highly subjective
- changes over time
- cannot easy be used to make international comparison
other factors used to assess poverty
- the level of indebtedness
- the level of unemployment
- extent to poor health or educational disadvantage
- the number of people living in inadequate housing or poor environmental conditions
other measures of poverty
- the united human poverty index
- standard basket of goods: poverty is calculated on the cost of a specific basket of g&s
- Ratio method: measured by calculating the proportion of income spent on basic neccessities e.g food&energy
Factors influencing inequality within a country
- education especially post secondary
- training&education
- tax system
- social benefits
- wage rate
- strength of trading unions
- inheritance
- ownership
- degree of employment protection
- pensions
Factors influencing inequality within a country
- education especially post secondary
- training&education
- tax system
- social benefits
- wage rate
- strength of trading unions
- inheritance
- ownership
- degree of employment protection
- pensions
- -individuals with a degree are likely to have a higher income than those with a levels
- skilled&highly trained workers workers earn significantaly more than unskilled worker
- if tax system is made more progressive>inequality is reduced
- includes minimum wage
- provides a safety net for those on low income>if benefits ^ > inequality falls
- includes minimum wage (which reduces inequality)
- reduces inequality as trading between countries is much cheaper&increases wage for its members
- how much an individual inherits can have affects on wealth
- ownership of assets (e.g house & shares) major impact on inequality
- employee protection&trade unions>impact on wage rate>effect inequality
- reduces inequality amongst elderly individuals
Definition of lorenz curve
What does a lorenz curve show
A graphical representation of income distribution
http: //ingrimayne.com/econ/AllocatingRationing/Figure6.5.gif
- Shows the cumulative percentage of income
- Shows the cumulative percentage of population
- 45 degree line=perfect equality
Gini coefficient
Difference between gini coefficient for developed and developing countries
A+B
-Economy with perfect equality will have a gini coefficient of 0
-Economy with unequal distribution of income will have a gini coefficient of 1
-Developed countries= 0.1 - 0.4
significance and consequences of poverty and inequality (explanation)
- Loans
- Very high inequality
- marginal propensity to save
- social cohesion
- education
- Those in absolute pov will have no collateral >unable to secure loans to start a business
- Very high inequality in countries>many people being in absolute poverty
- Large population living in absolute poverty> they will have a low marginal propensity to save> limit funds available for investment
- May lead to a loss in social cohesion>adverse consequences on growth e.g high crime rate
- countries with high levels of absolute poverty> can’t afford education>people are unlikely to find jobs>can limit an economy from growing
significance and consequences of poverty and inequality (5)
- Loans
- Very high inequality
- marginal propensity to save
- social cohesion
- education
Measures to reduce inequality
- Education and training
- Tax system
- Higher inheritance taxes
- Benefits
- Geographical mobility of labour
- National minimum wage
- improves quality of education&training for the poor&easier access to higher education
- Making tax systems more progressive e.g increasing number of tax bands on income
- Impact distribution of wealth
- increasing number and range of means-tested benefits>transfer payments go to those who need it the most
- Measures to increase geographical mobility>individuals who live in regions where there are no jobs available can easily move to an area where employment is available
- increasing NMW>reduce inequality or introducing NMW in countries will stop workers from being exploited
Measures to reduce inequality
- Education and training
- Tax system
- Higher inheritance taxes
- Benefits
- Geographical mobility of labour
- National minimum wage
Further causes of inequality within a country
- Economic development
- Globalisation
- Trade
-The kuznet curve: when economy is at a early stage of development &primarly
