Poverty and measures of inequality

what are the two ways we look at poverty

absolute poerty: where income levels are so low that a person cannot afford to meet their basic human needs and risk looking their life. $1-2 per day in PPP terms

reletive poverty: considered poor reletive to rest of society. measured by calculating the percent of population below 50% of the median income.

what is the HPI index

an alternative measure of poverty.
two types for LEDC’s and MEDC’s

what causes a change in Absolute poverty rates 5

war
natural desasters
low wages
old age
poverty trap

what is an indicator of economic developement

increased income distribution.

what are three measurments of inequality from income and wealth

1. the proportion of adults living below the national poverty line2.

2. the share of national income between the top and lowest 20% of earners

3. the Gini coefficient

4. the Lorenz curve

the Lorenz curve:

1. what does the lorenz curve show

2. what does the diagonal line represent

3. what does a wide curve tell us?

1. shows the distribution of income within an economy

2. perfect equality as every portion of society receives an equal portion of income

3. the wider the curve, the more households have less % of national income

what does 1 represent in the GIni coefficient and which country has the highest level

1, perfect inequality. Brazil has the highest Gini coefficient as of 2023

list three causes of inequality and how the work

1. fiscal policy. low levels of tax and spendings lowers income distribution as tax is regressive

2. ownership of assets. assets are owned by a few reletive to whole of society so returns will only benefit a few

3. labour market.flexible labour market will keep wages low. absence of tade unions means that workers tend to have lower wages

solutions of inequality 3

1. make tax more regressive.

2. capital gains tax on assets which increase in value

3. increasing NMW, better education

how does inequality change over time?

Kuznets diagram.

1. early developement, income is fairly distributed with everyone on low levels

2. some indeviduals at the forefront of innovation will have a rise in income reducing income distribution.

3. the trickle down effect means that society will be able to affort and protect poorest causing inequality to fall.

why is inequality an essential part of capitalism? 3

1. profit motive

2. some people want a potential higher reward than others

3. inequality incentivises workers as they can be paid more than others

three policies to reduce absolute poverty

1. subsidising domestic farming

2. prtectionsim of domestic food producers

3. nationalisation of water supply

what is the easterlin paradox

The Easterlin Paradox states that income or GDP levels have a positive correlation with perceived happiness up to a point. When basic needs are covered, other aspects such as relationships, health, and relative wealth become more important for overall happiness. This is seen in America: since the 1950s, America's happiness levels have remained flat or even slightly decreased, despite the country's GDP increasing drastically.