SimpleStudy® 4.2 Poverty & Inequality Q@ Simptestuay 4.2 Poverty & Inequality 4.2.1 Absolute & Relative Poverty a) Distinction between Absolute Poverty and Relative Poverty + Absolute Poverty refers to a condition where individuals do not have enough resources to meet the basic necessities of life, such as food, shelter, and clothing, Itis typically measured using a poverty line, which is a set income level considered sufficient for subsistence living, Individuals earning below this threshold are considered to be in absolu poverty. This concept is often used in the context of less economically developed countrie Relative Poverty , on the other hand, is a measure of income inequality within a society ar is therefore context-specific. It involves comparing an individual's income against the average income within their society. if the income is substantially less than the norm for that society, the individual is said to be in relative poverty. This measure recognizes that notions of poverty are not fixed and will differ from one country to another based on overe living standards. b) Measures of Absolute Poverty and Relative Poverty + For absolute poverty, measures include metrics such as the World Bank international poverty line, which is set at $1.90 a day (adjusted for purchasing power parity). People livir ‘on less than this amount are classified as living in extreme poverty. Other measures can include the number of calories consumed, access to clean water, and educational enrollment rates. + For relative poverty, measures often look at income distribution and the proportion of the population living below a certain percentage (often 50% or 60%) of the median income. Relative poverty lines account for changes in the standard of living over time and provide measure of poverty relative to societal norms and expectations c) Causes of Changes in Absolute Poverty and Relative Poverty + Changes in absolute poverty can be due to factors like economic growth or decline, publi policy decisions, changes in the population structure (like the proportion of young or old), and external events such as natural disasters. + Causes of changes in relative poverty can include shifts in wage distribution, changes in employment rates, government policies affecting taxation and transfer programs, and broader societal changes that impact the norms of income and wealth distribution. 4.2.2 Inequality @) Distinction between Wealth and income inequality+ Wealth inequality involves the distribution of assets owned by individuals or families, suct as property, stocks, savings, and inheritance. It is a stock measure, assessing the sum tote of these resources. + Income Inequality refers to the unequal distribution of income received by individuals or families, usually measured on an annual basis. It is a flow measure, looking at how much money comes in over a period, such as wages, rental income, dividends, and benefits. b) Measurements of Income Inequality + The degree of income inequality within a society can be represented diagrammatically b) the Lorenz Curve, which plots cumulative income against the cumulative percentage of households or individuals. A perfectly equal society would be represented by a 45-degree line, while any deviation from this line illustrates some degree of inequality. * The Gini Coefficient is a numerical representation of the income distribution within a country, scaled from 0 (perfect equality) to 1 (perfect inequality), where a higher Gini coefficient indicates greater inequality ¢) Causes of Income and Wealth Inequality within and between Countries * Causes can range from differences in education and skill levels, the power of labor unions taxation policies, globalization effects, the prevalence of part-time or low-wage jobs, socio-cultural norms, and government welfare systems. d) Impact of Economic Change and Development on Inequality + Factors such as industrialization, technology changes, and globalization can lead to changes in the demand for different skills and professions, affecting the distribution of income and wealth. e) Significance of Capitalism for Inequality * The capitalist system, based on free markets and private ownership, is often associated with both the creation of wealth and the concentration of wealth among a relatively smal proportion of the population, leading to various degrees of inequality. In the broader context of these issues, macroeconomic policies play a crucial role in influencing poverty and inequality both within and between countries. Measures such as fiscal policy, monetary policy, exchange rate policy, supply-side policies, and direct controls are assessed in different countries specifically for their impact on reducing distinctions and disparities among populations