ECON 251 Module 14: Poverty and Inequality

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22 Terms

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Poverty

lack of freedom to have or to do basic things that you value

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Absolute poverty

adequacy of resources relative to an unchanging standard

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Relative poverty

adequacy of your resources relative to others in your society

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Poverty rate

fraction of people whose family income is less than the official poverty line

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Poverty line

an income level below which a family is defined to be in poverty, varies by family structure, adjusted for inflation ONLY

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Official poverty measure (OPM)

census bureau, income based (wages, salaries, social security, interest, dividends, pension), multiples by thrifty food plan by 3, assumed all people residing together who are related marriage, birth or adoption share income, does not vary geographically

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Supplemental poverty measure (SPM)

starts with income, then adds other non-cash benefits (tax credits, SNAP, WIC, school lunch, housing and energy subsidies)

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Precipitating factors of poverty

divorce, childbirth, losing a job

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Poverty metrics

higher poverty among single parents and racial/ethnic minorities, children are most likely to experience poverty, least likely to experience poverty are elderly and full-time workers, long-term poor are a small share of those entering poverty and large share of those in poverty are in for short period of time

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Measures of inequality

income inequality, wealth inequality, permanent income inequality, spending inequality, intergenerational inequality

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Income

money you receive in a period of time, such as a year

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Wealth

all the assets, including savings, cars, and houses, that you currently have

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Permanent income

average lifetime income

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Quintile

group that contains 1/5 of the population

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Lorenz curve

curve that plots for any given percentage of the population, the proportion of total income earned by that particular group of people

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Line of perfect equality

line of income distribution on a Lorenz Curve if everyone had equal earnings

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Gini coefficient

number that measures a society’s income inequality, based on how income is distributed across quantities, ranges from 0 (perfect equality) to 1 (perfect inequality), doesn’t tell about poverty

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Utilitarian

promote greatest happiness for greatest number

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Rawlsian perspective

behind the veil of ignorance, consider your perspective before you know what circumstances you’ll be born into

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Benefit of redistribution

moves money to those who benefit more from it

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Cost of redistribution

moving money is costly

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Ways of redistributing wealth

tax policy, social insurance programs (social security, medicare, medicaid)