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1) 0.

42%
Another significant feature of the data is the range in the
purchasing power of different countries compared to the poverty
line. While Australia (the highest) lies at 2521%, India (the
lowest) lies at 27% producing a range of 2494%.
2) Market failure is when there is a misallocation of resources
within a market. Two factors which can cause markets to
fail about provide adequate pensions are information
failure, and the potential positive externalities that could
be associated with pensions if brought under state control.
Information failure towards the consumers can cause this
market to fail as they will be unaware of the potential
benefits awaiting them. This asymmetrical distribution of
information means that people are unaware of the need for
pensions, or do not know at what age they will need them,
therefore are more likely to partake in fulfilling their
immediate wants and needs rather than saving for the
future.
In addition, the potential positive externalities associated
with the state provision of pensions can be another cause
for market failure. The positive effects of pensions make
them resemble a merit good, which we can argue, should
be provided by the state. However, in private hands the
provision of pensions is not being optimised.
3) The definition of a national minimum wage is when a
government implements a policy that defines the lowest amount
a worker can be paid per hour. Welfare benefits are benefits
provided to those in disadvantaged situations as compared to
the rest of the population (those in relative poverty). Poverty can
be defined in two ways: absolute (which has currently been
eliminated in the UK), and relative. Absolute is when a person
does not have enough money to provide for their basic needs:
water, food and shelter, however relative poverty is when basic
needs are affordable, however at a lower quality than to others in
the same society.
An advantage of increasing the national minimum wage is that it
incentivises people to lift themselves out of poverty and find
work (had they previously been content with living off benefits).
In addition, it decreases the amount of poverty in the working
population by giving them increased disposable income,
therefore decreasing relative poverty. By increasing the national

minimum wage it could also allow poorer people to start saving


for a pension, instead of only being able to take care of their
immediate needs and wants (extract C). Low-skilled and low
paid jobs are also usually the most manual, therefore it would be
likely that by the time a person reaches pension age they will no
longer be able to work. This means that the increases in the
wage will benefit those who need it most, due to their lack of
physical ability to work after a certain age, and by giving them
enough money to save. However, the extent of these benefits is
arguable. An increase in the national minimum wage could have
an adverse effect by increasing the cost of labour to employers,
who will then seek cheaper substitutes (machinery), or make
workers redundant. This will have the opposite effect desired, as
poverty will become more prominent in society if this occurs.
There are also disadvantages to increasing the national minimum
wage, instead of increasing welfare benefits. This takes people
who are physically and mentally unable to work out the equation
quite like the pensioners, many people due to medical
conditions, or old age are not able to take up even low skilled
jobs. Therefore by not increasing the amount of disposable
income they need (which is arguably more than normal people,
taking into consideration disabilities), poverty will remain at the
same level. While it may raise working people further out of
poverty, those who rely on benefits will remain severely
disadvantaged. In addition, this does not work on alleviating
child poverty which is seen to be one of the most pressing issues
(Extract B). By increasing the national minimum wage it will
mean that throughout their childhood they will not enjoy a higher
standard of living, and are therefore likely to grow into poor
adults, and remain poor into old age. In addition, the by
increasing the amount that businesses have to pay their
employees, can lead to either wage-push inflation (causing the
prices of goods and services to rise because of the increase in
wages), which will lead to decreased demand, and eventually
decreased derived demand for labour, and therefore increase
unemployment, or it will lead to businesses laying off workers in
an attempt to reduce costs. The extent of this however, depends
on the amount that the minimum wage is increased by, as
businesses may be willing to pay the extra costs of employing
labour if it is relatively low.
Another policy the government can look at is increasing welfare
and benefits for people who are disadvantaged. This is
advantageous as it targets people who are unable to find work
(due to unemployment) or those who are unable to work (due to

disabilities). This means that poverty overall will decrease as


people n benefits are elevated to the same level as those earning
the national minimum wage. In addition, by increasing benefits
we are redistributing wealth, from the rich to the poor through
taxation, decreasing inequality as well. By doing this we reduce
the risk of unemployment due to wage push inflation, however
we are still increasing the standards of living. In addition, we are
helping increase the quality of life for disadvantaged children,
who will then be more likely to sustain this throughout the rest of
their lifetime, instead of remaining poor into adulthood (Extract
B). The extent of this however, depends on the amount that
welfare increases by. Currently, the government is spending 12
billion less on what it did last year on welfare. This means that
measures will have to be taken to reintroduce this amount of
welfare back into the system.
Finally, there are also disadvantages of increasing welfare in
order to decrease poverty. By increasing benefits the
government will be disincentivising people to find work, which
will lead the lazy part of the unemployed population to remain
out of work voluntarily. This means that while poverty will be
reduced to a certain extent they will be forgoing opportunities of
ever making more money (through promotion), and there will
therefore always be a set level of poverty, instead of seeing it in
a state of ever reducing. In addition, with this set level of
poverty, we will see a set level of demand, which means that
there will be a lesser extent of prosperity, which would help both
the economic recovery and employment. This is because if
welfare benefits are increased, the unemployed only have a
certain amount of disposable income to spend. Because this
never increases, there is never increased aggregate demand
within the economy, which means that there is less GDP and
growth overall. With less aggregate demand, there is less
derived demand for labour, which in turn leads to either
sustained amounts of employment, or slightly reduced amounts
of employment in the long run. In addition, welfare is paid
through taxation, which will have to be increased in order to gain
more revenue for benefits or money will have to be deducted
from elsewhere on the budget. If the government decides to
follow through will high taxation, this will further reduce
disposable income in the upper class eliminating the possibility
of trickle down, and also decreasing aggregate demand.
However, the extent of these disadvantages depends on the
significance of the increase in welfare and benefits it may be
that it does not increase enough to deter the rich from spending,
however this will likely mean that it does not do a great deal to

further alleviate poverty.


In conclusion, it would be better for the government to adopt the
national minimum wage, as this not only incentivises people on
benefits to work, but it means that there is less of a chance of
trickle downs effect decreasing, rather than if we increased
benefits. In addition, it is not impossible for mentally or
physically impaired people to find work. This work is likely to be
at the level of the minimum wage, which means that this policy
can even help those originally thought unable to work. This also
reduces the risk of benefit fraud, as there is less of an incentive
to go through the effort to appear as though one needs benefits,
if they do not enjoy a relatively higher standard of living, rather
than if they were working.