4.2.1 Absolute & relative poverty & 4.2.2 Inequality/

Distinction between absolute poverty & relative poverty (very common)

• Absolute poverty = when a person’s daily existence is threatened because they have insufficient resources to meet their daily needs or basic necessities to survive

• Relative poverty = when a person’s daily existence is relatively poor compared with others in their society/rest of their country

Measures of absolute poverty & relative poverty (very common)

Absolute poverty

• World Bank defines extreme poverty / absolute poverty as living less than $3 per day

Relative poverty

• For UK / in any country, this is if household has less than 60% of the median household income in their country (31000 pounds for UK)

Causes of changes in absolute poverty & relative poverty

• Economic growth rates

• Foreign Direct Investment (FDI)

  • = Investment in a firm by another country → create jobs for unskilled workers, bring new technologies to improve quality of services (healthcare, education)

• Trade

  • expand markets & foster growth

• Taxation rates

• Benefit payments

• Asset prices

Distinction between wealth & income inequality

• Wealth inequality = Differences between people due to the value of assets that they own (eg. Savings, shares, property)

• Income inequality = Differences between people due to their earnings from wages or profit

Measurements of income inequality: the Lorenz curve (diagrammatic analysis)

Measurements of income inequality: the Gini coefficient

Causes of income & wealth inequality within countries and between countries

• level of education, training & skills

  • Lack of education - poor education = ppl lack skills to take on higher-paying jobs & these jobs could increase one’s wealth

• Wage rates, including minimum wage

• Trade union strength

• Level of benefit payments

• Tax system’s progressiveness

• Level of state pension

• Family wealth

One likely reason for the change in UK income inequality

• May be use to change in government policies / taxation

• Ie. An increase in level of benefit payment

Impact of economic change & development on inequality

Significance of capitalism for inequality

• Capitalistic economic system = a free market economy where resources are owned by private sector & prices are determined by supply & demand

• The system is split into 2 parts:

  • the owners of the resources required for producing & distributing gds

  • working class who sell their labour to the owners in exchange for wages 

• Owners will have more wealth & income than workers → inequality 

Policies to reduce inequality

• Universal Basic Income

  • when government gives every adult citizen a set amount of money regularly, regardless of their employment status to ensure they meet the basic standard of living

  • flaws: reduces incentive to work, might be insufficient in expensive cities while being generous in rural areas

  • Does not cause inflation as money for UBI is redistributed from other areas, not newly printed

• Redistribution of income (through taxes & benefits) - taking more from higher earners and distribute it to lower earner

• Improve educational training opportunities

• Regional assistance (directing funds to areas which needed to improve their infrastructure, create jobs…)

• Anti-discrimination laws

Distinction between income & wealth (2)

• Income = money received as payment for work (ie. Salaries / wages)

• Wealth = total value of assets owned

Explain the distinction between absolute poverty & relative poverty (5) (very common)

• Definition of absolute poverty (k)

• Definition of relative poverty (k)

• Measurement of absolute poverty (application)

• Measurement of relative poverty (application)

• Quote from extract suggesting absolute poverty is decreasing, relative poverty is rising

• Analysis: absolute poverty can decrease at the same time as relative poverty increases