4.2 Poverty and Inequality

Flashcards covering key concepts from the lecture notes on poverty and inequality, including absolute and relative poverty, causes of changes, inequality measurements, and the impact of economic change and capitalism.

What is absolute poverty?

When people are unable to afford sufficient necessities to maintain life.

According to the World Bank, what defines absolute poverty?

Living on less than US$1.90 a day.

What is relative poverty?

People's income compared to others in their area.

In Britain, how is relative poverty classified?

Those with an income of less than 60% of median household income.

What are some causes of poverty?

Unemployment, a lack of skills, health problems, and income dependency.

What are the main causes of growth of relative poverty?

Larger income growth for those on higher salaries or changes in government spending and taxation.

What is income?

A flow of earnings.

What is wealth?

A stock of assets.

Why is wealth likely to be more unequally distributed than income?

Assets that make up wealth can be accumulated over time, and wealth can be passed down through inheritance.

What does the Lorenz curve show?

Shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have.

What is the Gini coefficient?

A/(A+B) - the ratio of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve.

Why do some workers earn more than others?

Higher educational achievements, working longer hours, or skills being more in demand.

What factors can hold back some countries' economic development?

Wars, droughts, famines, and earthquakes, as well as the exclusion and marginalization of certain social groups.

What does the Kuznets hypothesis state?

As society develops and moves from agriculture to industry, inequality increases, then wealth is redistributed through taxation and government spending, causing inequality to fall.

How did Piketty discredit the Kuznets hypothesis?

Inequality rises as the country develops because the rate of return on capital grows, so the rich get richer.

Why does a capitalist economy lead to income inequality?

Wage differentials, the ownership of resources, and the possibility of passing on or gaining wealth through saving of incomes.

Why does a capitalist economy lead to income inequality?

Wage differentials, the ownership of resources, and the possibility of passing on or gaining wealth through saving of incomes.

Why is inequality essential for capitalism to work?

Without the incentive to gain more, people will not try hard or take risks since they have no reason to and this means the economy won’t grow; inequality is essential for capitalism to work.