3.4 Inequality & Poverty DP IB Economics: HL

Flashcards covering terminology, measurements, causes, and policies related to inequality and poverty in IB Economics HL, based on lecture notes.

Equality

Situations where economic outcomes are similar for different people or different social groups.

Equity

Refers to the idea of fairness and is a normative concept, implying fairness in the wage differentials that exist in society.

Income inequality

Refers to the unequal distribution (flow) of income to households (e.g., rent, wages, interest, and profit).

Wealth inequality

Refers to differences in the amount of assets that households own.

Absolute poverty

A situation where individuals cannot afford to acquire the basic necessities for a healthy and safe existence, such as shelter, water, nutrition, clothing, and healthcare.

International Poverty Line (IPL)

Defined in 2022 by the World Bank as living on less than $1.90 a day, representing the absolute minimum income needed for basic human survival.

Relative poverty

A situation where household income is a certain percentage less than the median household income in the economy, typically less than 50% of the median.

Lorenz Curve

A visual representation of the income inequality that exists between households in an economy, often displaying data in quintiles or deciles.

Gini Coefficient

A measure of income inequality calculated using the area beneath the line of equality and the Lorenz curve, with a value of 0 representing absolute equality and 1 representing perfect inequality.

Minimum Income Standard (MIS)

Identifies the lowest amount of income needed for what society views as an acceptable standard of living in a country.

Multi-dimensional Poverty Index (MPI)

A composite indicator launched by the Oxford Poverty and Human Development Initiative, tracking deprivation across three dimensions (health, education, living standards) and 10 indicators.

Poverty Cycle

A diagram illustrating how low wages lead to poor human capital (lack of education and healthcare), which in turn leads to lower productivity and shorter life expectancy, perpetuating low wages and poverty.

Human capital

The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.

Globalisation

The economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology, and finance.

Direct taxes

Taxes imposed on income and profits, paid directly to the government by the individual or firm (e.g., income tax, corporation tax).

Indirect taxes

Taxes imposed on spending (e.g., Value Added Tax, excise duties on demerit goods).

Progressive tax system

A tax system where, as income rises, a larger percentage of income is paid in tax, redistributing income from higher earners to lower earners.

Regressive tax system

A tax system where, as income rises, a smaller percentage of income is paid in tax (all indirect taxes are regressive).

Proportional tax system

A tax system where, as income rises, the same percentage of income is paid in tax.

Marginal tax rates

The amount of additional tax paid for every additional dollar earned as income, typically increasing as income increases in a progressive system.

Average tax rate

Calculated by dividing total taxes paid by total income, multiplied by 100.

Transfer payments

Financial support usually given by the government to the poorest and most vulnerable people in society (e.g., unemployment benefits, pensions, disability payments).

National minimum wage

A legal minimum rate set above the free market rate that firms are not allowed to pay anyone less than.

Universal Basic Income (UBI)

A guaranteed minimum income level, paid by the government to each individual in society when necessary.