macro 3.4 Economics of inequality and poverty

wojd. lmao

define and explain the difference in absolute and relative poverty

absolute poverty: when household income is below a minimum level that allows them to buy the BASIC NECCESITIES

relative poverty: a concept that compares the household’s income with the country’s median, once household’s income is below the median level, its considered as relative poverty

• developed countries → have no to very little absolute poverty

• every country has relative poverty

list ways to measure poverty (3)

1. International poverty lines

2. Minimum income standards

3. Multidimensional poverty index (MPI)

Limitations in measuring poverty

• Only tells how many people are falling below the minimum poverty line but doesnt indicate how much is fall below

• Understated due to freelance work

• Doesn’t consider about the wealth and saving → only counts income

• Overestimate or underestimate the country’s poverty

state differnce between equality and equity

equality → everyone gets the same thing

equity → outcomes are similar despite of their differnces, about fairness

gini coefficeint equation and explain how it relates to inequality in income distribution

A/A+B. the higher the coefficeint the more inequal.

list and evaluate causes of economic inequality and poverty (6)

1. Difference levels of resoruce ownership

2. Lack of human capital (lack of labour skills)

3. Discrimination NIGERIA

4. Unequal status/power

5. Government tax and benefit policies (coastal reiogns → maybe less benefits or policy can’t cover)

6. Market based supply policies → deregulation, labour market reforms

what are the possible effects (consequences?) of inequality in wealth and income

1. More crime rates

2. Unable to afford healthcare and educaiton (merit goods)

3. Lowered livign standards increase cahcnes of gernatinal poverty → worsen social mobility

4. Higher infant mortality → higher death rate for babies

list the types of taxes and how they are categorised

how it is received: direct and indirect tax

how it affects income: progressive, regressive and proportional tax

describe differences between direct tax(3) and indirect tax(4)

direct tax:

• tax paid directly from those who owe the tax to the government

• always charged on pereson’s income or wealth

• legally UNAVOIDABLE

indirect tax:

• does not directly go to the government

• imposted on expenditure on goods and services

• its placed upon the price of the product → seller collects and send it to government

• u can avoid it lol

give examples for direct and indirect tax (2 per each)

direct: income tax, corporate tax

indirect: tobacco/alcohol/smoking tax - aka taxing on demerit goods, ad valorem tax (VAT value added tax aka japan u buy stuff u need to pay tax gor d REAL LIFE EXAMPLE)

LIST the 3 taxes, the ones about how the tax affects your income:

1. progressive tax

2. regressive tax

3. propoortional tax

describe what is progressive tax, how it affects your income. Characteristics? (how does it affect distribution of income?), however what is 1 limitation of proportional tax?

• as income increaeses the higher the percentage of income paid in tax

• able to redistribute income from high income earmers to low income earners

• most developed countries have this type of system for income tax

• more equal distribution of income

• but may discourage people from working overtime

describe what is proportional tax, state 2 benefit and 1 limitation of this kinda tax

• proportion of income (its a tax rate) paid in tax is the same as inccome increases (since its the same → also called flat tax)

• benefit: easier to implement, creates more incentives for people to work

• limitation: could widen the gap between welath and poor → increase income inequality gap → 10% for a low income household is ALOT while 10% from a wealthy household is minimal as FUCK

regressive tax definition? state 2 benefits and 2 limitations

• proportion (percentage) of income paid in tax falls as income rises

• benefit: creates high incentive for people to work → the more you work, the less tax you need to pay → the more disposble income, could sicourage consumption of demerit goods (ur poor, u have no money, u don’t have disposable income to buy expensive demerit goods)

• limitaion: worsen ineequality → the more poor you are the more tax you need to pay → you get more and more poor with minimal disposable income for expenditure on goods and services

indirect taxes are regressive/progressive? why?

direct taxes are regressive/progressive why?

• indirect taxes are regressive because the more less income you have the more proportion of ur income needs to be spent (i.e a pack of cigarettes is 100 (inside 50% of them is tax)) however for the rich, that 100 is nothing to them as its a very small proportion in their income however for an unwelathy person, that 100 is a lot for them

• direct taxes are progressive, because as your income increaes, the more direct tax you need to pay, i.e income tax and corporate tax

for and against on progressive taxation as a mean to achieve more equitable distribution of income: state 2 fors and 3 againsts

for:

• the wealthy will pay higher tax rate as they can afford, compared to the low-income households → more fair → relate to the theme of equity (income more distributed fairly)

• tax received by government → increase in government revenue → can be used to develop infrastructure in the country or just used in elsewhere in the country

against:

• since ur paying more tax when u work more → disincentives for ppl to work

• discourage entrpreneural activity and investment → lower economic growth

list policies to reduce inequalities of opportunities/investment in human capital (3)

• public heath insurance

• school food policies to make sure low income household children can afford basci neccesity → food (so food in school canteen are cheapter than the outsiide)

• targeted support for low performing studnets → so that they dont get dropout from school

what is universal basic income scheme

scheme that states that it will provdie residents in a country a sum of money no matter how much their income is (equality)