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P. 1
Poverty, Inequality

Poverty, Inequality

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Published by hishamsauk

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Published by: hishamsauk on Mar 21, 2011
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12/16/2012

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E
CONOMICS OF
S
OCIAL
P
OLICY
:P
OVERTY
, I
NEQUALITY
 
C
HOICE
V
S
C
ONSTRAINT
Before we discuss problems of defining poverty, we must illustratethe difficulty in distinguishingbetween someone who is poor BY CHOICE and someone who is poorBY CONSTRAINT.
The diagram shows two people whoearn the same level of income ² whatever definition is being used ² and fall below what society regardsas the ¶poverty line·.
However,one (on the redindifference curve) is poor by choice² by working more hours he couldgo above the poverty line.
The otherone works far more (22hours a day) yet will always bebelow the poverty line.
Thus, because preferences differ,
we
can only h
e
lp to giv
e
th
e
 OPPORTUNITY to stay abov
e
 th
e
pov
er
ty lin
e.
24222PovertyIncomeHrs of Leis
 
ure
 
I
NCOME
Because Income is central to all definitions and measurementof Poverty and Inequality, one must first define it.
The most logical and complete definition of income is:
y
Th
e
sum of all fo
r
ms of mon
e
y incom
e
(sala
r
y) and all fo
r
ms of non mon
e
y incom
e
(job satisfaction
e
tc
.
)
However, there are distinct problems in measurement.
hat do
we
includ
e
in Incom
e?
 
y
D
ue to not being able to observe non-money income, we are restrictedto money income; HOWEVER, there is no systematic link between thetwo component parts which means that money income is notnecessarily a good proxy for full income.
Th
e
Incom
e
Unit:
y
D
o we observe income per person or per household? The former wouldleave a family as mostly destitute (if it relied on one bread winner),the latter would not ² nor would it pick up on inter-family inequality.
Tim
e
P
er
iod:
y
Income may not be a steady flow; although in the long run one mayearn a lot, he may earn nothing (a student) at points in time. Thus thetime period under consideration has to vary with purpose.

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