Economics Unit 3- Poverty

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What is Absolute Poverty?

This describes a situation where income levels are so low that a person cannot afford to meet their basic human needs and risk losing their life. The World Bank has set international poverty levels at $1- $2 per day.

When you are describing absolute poverty, you can think about 4 main things:

1.Enough food

2.Access to clean water

3.Adequate shelter

4.Access to basic healthcare

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Why is it important for an economy to solve absolu

·        -Lose of the workforce (labour): If there are decreasing numbers of workers in an economy there will be less economic growth as labour is needed as part of the production process.

·    -Spread of disease: Without basic healthcare, a disease can spread very quickly which leads to a decrease in the population and also creates instability within the country.

·    - Lack of Foreign Direct investment (FDI): MNC’s will be unlikely to invest in  a country with an unstable workforce but also where there is a high probability that their own workers will catch diseases.

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What is Relative Poverty?

This describes those who are considered poor relative to the rest of society. You could measure this by calculating the % of the population living below 60% of the median income. However, this method means that poverty is subjective and will change over time. It also means that you cannot compare different countries. Relative poverty rises from inequality.

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Why is it important for an economy to solve relati

·         -Those with the lowest living standards will be unlikely to have the ability to work. This lowers the labour supply to the economy.

·    - Inequality (when a high percentage of people live in relative poverty)is a sign of an unbalanced economy. For living standards to rise the income needs to be distributed among the population.

·    -High levels of inequality may lead to social unrest. This is bad for the economy as it deters internal and external investment.


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