Poverty & Inequality – AS/A LEVELS/IB/IAL
Poverty & Inequality – AS/A LEVELS/IB/IAL
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Poverty & Inequality
Absolute Poverty
This is the minimum amount of resources a person needs to meet basic human needs such as food, clean water, shelter and clothing.
Relative Poverty
People are in relative poverty if they are living below a certain income threshold in a particular country. This is normally when someone earns well below the median level of income of a country.
Problems with relative poverty
- Relative poverty levels will be different in developed vs developing countries. This is because someone that is poor in the UK might not be poor in India.
- It is highly subjective
- It will change over time from country to country
- Although it is used to make international comparisons it’s not deemed to be very accurate.
Word Banks measure of Absolute Poverty
In 2015 the World Bank defined the international poverty line to be at $1.90 a day. It was previously set at $1.25 a day in 2005.
Other measures of poverty
Human Poverty Index
This is a composite poverty index that is split into two indices.
HPI – 1
This is a measure of deprivation in the poorest countries of the world. The three main elements of this index are the following.
- The percentage of people not expected to survive until the age of 40.
- The percentage of people who are not literate.
- The percentage of the population who do not have access to clean water or healthcare.
HPI – 2
This measure is used for developed countries around the world.
- The probability at birth of not surviving to age 60.
- The number of adults who are illiterate.
- The percentage of the population below the income poverty line. (50% of the median household income of a country)
- The rate of long term unemployment.
What factors influence changes in absolute and relative poverty?
- Education & training
- Wage rates
- Inheritance
- Ownership of assets e.g. property
- Distribution of income
- Access to basic public services
- State of the economy
- Unemployment
- Social benefits
- Tax rates
- Pensions
- Countries debt
Poverty Trap
A sitaution which there is little incentive for workers earning a low income to earn extra income, because it would result in having to either pay higher tax and/or losing some of their benefit payments.
Inequality
What is the difference between income and wealth?
Income
Income is a flow concept, e.g. the money earned over a period of time. This is usually generated from a salary.
Wealth
This is a stock concept and to do with the assets a person owns. E.g. property, shares, car, yacht etc.
What can be used to measure Income Inequality
The Lorenz Curve
The Lorenz curve highlights the income distribution of a country against its population.
Source: qualifications.pearson.com
The further the Lorenz curve is from the 45-degree line, the less equal the distribution of income will be.
Perfect equality would be, for example, where 50% of the population gain 50% of the income or 70% of the population gain 70% of the income.
Gini coefficient
The Gini coefficient is area A/A+B
- A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income).
- A Gini coefficient of one (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income)
AQA Spec – Additional Content
The causes of Poverty
Wage or Unemployment Inequality
Workers which possess qualifications and a higher level of education can earn higher wages than those who don’t, making it harder for those without education to secure a well paid job.
Countries which don’t have a NMW may struggle the most and fall into the Poverty Trap
Deindustrialisation
Deindustrialisation in the UK has caused structural unemployment to rise, leading to the deterioration of workers’ skillsets and long-term unemployment
Taxes
Regressive tax systems mean that those on lower incomes pay a larger amount in tax than those on higher incomes, widening the income inequality between the rich and poor, as well as causing greater poverty
Health Problems
Those suffering from diseases or other severe health problems may struggle to undertake a job due to the health restrictions imposed
People also may need to constantly take time off work due to health issues which can deter MNCs from investing into a country.
As a result, people may be left without a solid income – this pushes them into Absolute Poverty
Political Factors
Wars and other forms of conflict may cause people to flee their homes and destroy any of their assets, resulting in extreme poverty
Impacts of Poverty
Economy
Most of the higher paying jobs become inaccessible without a basic level of education, hindering the economy’s ability to grow and improve its productive potential
Education
Families may face an opportunity cost between feeding their children and sending them to gain education if they are on low incomes
If this is the case, it can be difficult for them to escape poverty as they get older
Health
Lower life expectancies and poorer standards of health are associated with higher rates of poverty due to the limited access to resources / clean sanitation
Quick Fire Quiz – Knowledge Check
1. Distinguish between ‘Absolute Poverty’ and ‘Relative Poverty’ (4 marks)
2. Explain some of the problems with Relative Poverty (6 marks)
3. Identify and explain two other measures of poverty (8 marks)
4. Identify and explain four factors which influence changes in absolute and relative poverty (8 marks)
Next Revision Topics
A Level Economics Past Papers
