When people are unable to afford sufficient necessities to maintain life
World bank defined as anyone on >$1.90
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What is relative poverty?
About people's income compared to others in their area
In UK, income of less that 60% of median household income
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What is the poverty line?
Minimum level of income necessary to have an adequate standard of living
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What is the poverty trap?
When tax and benefits sytstem createss a disincentive to work longer hours - by working longer individuals lose income trough taxes + lose state benefits
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What causes a change in absolute poverty?
Change in GDP
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What causes a change in relative poverty?
Inequality in wage growth
De-industrialisation
Decline in strength of trade unions
Level of state benefit, regressiveness of taxes
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What is income?
Flow of earnings
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What is wealth
Stock of assets
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What is income inequality?
Refers to the extent to which income is distributed in an uneven manner
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What is wealth inequality?
Refers to the extent to which economic assets are unevenly distributed
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What is the lorenz curve?
Shows actual distribution of income and wealth
Shows cumulative percentage of population plotted against cumulative percentage of income
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What is the line of perfect equality?
Line showing the richest x% own x% of cumulative income
y = x
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What is the Gini Coefficient?
Gives numerical value for inequality
= A/A+B
A = Area bounded between line of perfect equality and lorenz curve
B = Area below the lorenz curve
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What causes income and wealth inequality?
Wages
Wealth levels
Welfare payments
Changes to tax system
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How do wages cause income and wealth inequality?
Higher level of income. higher savings, higher wealth
Lower level of income, higher proportion spent on necessities
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How do wealth levels cause income and wealth inequality?
People inherit wealth
People with higher wealth can afford to make risky investments, increasing wealth further in long run
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How do welfare payments cause income wealth inequality?
State pensions and welfare payments rise less than wages
People unable to work see smaller real incomes than those working
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How do changes to the tax system cause income and wealth inequality?
Indirect taxes tend to be regressive
When tax rates fall, it helps those on lower incomes, but also favours the rich - widened inequality
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What are the causes of income and wealth inequality between countries?
Wars, famines, natural disasters
Developed countries tend to trade with other developed countries, widening gap between undeveloped countries
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What is the Kuznets Hypothesis?
As society moves from agriculture to industry, inequality increases
Wages of industrial workers rise faster than farmers
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What is the Kuznets curve?
Rising inequality against rising incomes
Curve shows a negative parabola
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What is a capitalist economy?
When capital is privately owned and workers paid wages by private firms
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How does capitalism affect inequality?
As individuals own resources, wealth differs based on assets owned
Inequality is essential for capitalism to work (incentive to work)
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Other cards in this set
Card 2
Front
What is relative poverty?
Back
About people's income compared to others in their area
In UK, income of less that 60% of median household income
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