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ECONOMICS THEME 4 - TOPIC 4.2 - POVERTY AND INEQUALITY - Coggle Diagram
ECONOMICS THEME 4 - TOPIC 4.2 - POVERTY AND INEQUALITY
absolute and relative poverty
absolute
when people are unable to afford sufficient necessities to maintain life
defined as anyone living on less than $1.90 a day
more economic development tends to mean less absolute poverty
relative poverty
this is about peoples income compared to others in their area
in britain its classed as those with an income of less than 60% of the median household income
causes of changes
caused by unemployment, a lack of skills, health problems and income dependancy
absolute poverty tends to do with the countries economic state
relative poverty growth is usually down to those on larger incomes experiencing more growth and changes in gov spending + taxation
in the UK...
relative poverty growth due to
inequality in wage growth
,
deindustrialization
,
less state benefits
,
more unemployment
inequality
distinction between wealth and income inequality
income
is a flow of earnings, whilst
wealth
is a stock of asset
wealth
is likely to be less equal
measurements of income inequality
lorenz curve
this shows the cumulative percentage of the population plotted vs the cumulative percentage of income those people have (the curve shows the degree of inequality)
the gini coefficient
a calculation through the lorenz curve - A/(A+B)
Causes of Wealth and income inequality
Within countries, it's caused by
wages
(some people payed more than others),
wealth levels
(someone who has high wealth can build up more wealth easier,
chance
(those who inherited wealth or got lucky) and
age
(those at the peak of their career will earn more)
Between countries, it's influenced by wars, famines, trading preferences, etc...
impact of economic change and development
The Kuznets hypothesis says wealth is redistributed through taxes and government spending as industrial wages rise compared to farmers
But Piketty says that inequality rises as the country develops as the rich get richer
Significance of capitalism
wages vary as they're based on D+S
wealth can be passed on or gained
It's argued that inequality is essential for capitalism to work