Download 4.2. Poverty and inequality student version

4.2.1 Absolute and relative poverty
 4.2.2 Inequality
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Students should be able to:
 Distinguish between absolute poverty and relative
poverty
 Analyse measures of absolute poverty and relative
poverty
 Evaluate causes of changes in absolute poverty
and relative poverty
What is absolute poverty?
How does the World Bank measure it?
In 2008, the World Bank set the poverty line at
$_______ a day at 2005 GDP measured at
purchasing power parity.
Some economists measure the poverty line at $___
a day.
What is relative poverty?
Relative poverty exists when a
How is it measured?
It is measured in comparison with
In the EU, people falling below ____% of median
income are said to be ‘at-risk-of-poverty’ and are
said to be relatively poor.
Median income is the amount that divides the
income distribution into two equal groups, half
having income ________ that amount, and half
having income ________ that amount.
Mean income (often called average) is the amount
obtained by dividing the total aggregate income of a
group by the number of units in that group.
Note that both mean and median income are
averages.
Students should be able to:
 Distinguish between wealth and income inequality
 Analyse measures of income inequality: the
Lorenz curve (diagrammatic analysis) and the Gini
coefficient
 Evaluate causes of income and wealth inequality
within countries and between countries
 Analyse the impact of economic change and
development on inequality
 Evaluate the significance of capitalism for
inequality
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Wealth refers to
Wealth inequality relates to differences in:
Income is a ______ concept
Therefore, income inequality relates to differences
in:
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Lorenz curves plot cumulative share of income (or
wealth) against the cumulative share of the
population with that income (or wealth)
“A” represents the area between the diagonal line
and the Lorenz curve and “B” represents the area
under the Lorenz curve
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The straight 45° line shows total equality
The further the curve is from the 45° line, the
____________ the income inequality in society
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To determine the degree of inequality, the Gini
coefficient may be calculated: G = A ÷ (A + B)
The Gina coefficient will have a value between 0
and 1, with 0 representing absolute ___________
(the 45° line) and 1 representing absolute
__________ (the Lorenz curve would lie along the
horizontal and vertical
axis)
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Year
1978
1988
2016
top tax rate
%
%
45%
basic rate
%
22%
%
Year
1998
2005
2015
2016
Minimum wage
£3.60
£
£
£
(living wage)
VAT
8%
%
%
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Wealth may be through owning:
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Wealth may be accumulated through:
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Inequality arises because of:
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As a country develops and its GDP grows from a
subsistence economy, inequality initially ________
and then ______________ (Kuznet’s curve)
Industrialisation results in increased inequality as
workers move from the lower productivity and lower
paid __________ sector into the higher productivity
manufacturing sector but with ___ pay.
However, at some point, inequality starts to
decrease. This may be because ______________
have more resources to redistribute income
through the tax and benefit system.
 In
a capitalist society individuals are able to _____
themselves out to producers to _________ income
 Individuals may own physical capital (assets e.g.
_________) and/or financial capital (e.g.________)
and receive income: dividends or rent
 The amount they receive depends on supply and
__________
 Workers with few skills are likely to receive low
__________
 Those with no wealth or income may be supported
by:
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Inequality in a free market economy is inevitable,
since
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Private ownership of resources means that some
people
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Some argue that inequality is essential in a
capitalist system because?
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The welfare stare is designed to ensure greater
_______________
The UK government believe that the market
mechanism produces an allocation of resources
which is sub-optimal from an equality viewpoint
and so they _____________ to correct it.
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With reference to Figure 2, describe what has
happened to income inequality in Russia. Illustrate
your answer with a Lorenz curve diagram. (8)
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With reference to the information provided,
examine possible reasons why the proportion of
the population in relative poverty in Russia has
declined despite the Gini coefficient increasing
over the same period. (10)