Skip to main content

4.2.1 Absolute and relative poverty

Absolute and relative poverty 

Absolute poverty - the inability of a household to afford a basic standard of living/meet basic needs.  

Threshold irrespective of the economy being looked at, so few people in the UK are in absolute poverty due to the support systems in place (e.g benefits) 

WB defines extreme poverty as the % of population living off of less than $1.90 a day (PPP adjusted) 



Relative poverty - when a household has an income considerably lower than that of others in their country. In the UK the threshold for this is when income is 2/3 lower than the median income. 

This means that if you are in relative poverty you aren't necessarily in absolute poverty. People in the UK who are in relative poverty are not in absolute poverty as if they were in Zambia for example they would not be in poverty at all with their current income. 


Poverty is usually measured by looking at incomes. It could also be measured by seeing what basic household items are owned (e.g % of households that own a fridge)

Causes of changes in absolute and relative poverty 

NMW being put in place or changed - if set at a reasonable level, the NMW will reduce poverty among those who used to be paid less. In a monopsony, can also mean more people are being paid as employment increases. Relative and absolute poverty reduced. 

Economic growth - reduces absolute poverty by increasing employment, wages and tax revenue that can be used to provide services, but may actually increase relative poverty as inequality rises. Also may deplete finite resources, increasing poverty further down the line (global warming) 

Progressive taxation - those who earn more are taxed at higher rates, and this money can be redistributed to those earning less through benefits and state-provided services. This reduces relative poverty. 
However, if taxes are set too high, high income earners may move abroad, leading to a loss in revenue and labour for the country. 

Benefits/state provision - state-provided healthcare, education, transport, etc. all reduce inequality and relative poverty as those on lower incomes can receive the same quality of service as those on higher incomes. Better living standards. 

 These services, as well as benefits, redistribute income as they are funded by money collected through taxation, which those that are richer pay more of. 

 The issue with these is they reduce the incentive to work, especially if there are steep withdrawal rates, meaning that as one begins to earn more, the benefits that are removed from them may actually make them worse off. 
Labels:

Comments

Post a Comment

Popular posts from this blog

Business Growth

Why do businesses grow?  Profit motive Businesses grow to make more profit by increasing revenue. Selling more to more people often means profits increase.  The valuation of a company's share is often influenced by how it is expected to do in the future (ie how much profit it is likely to make). When it is projected to do well, share prices increase, and it is valued more highly on the stock market. This provides incentive for companies to increase profits, doing well on the stock market increases investment and raises more money.  Cost motive - economies of scale When firms are larger, relative costs are smaller. This is because some costs are fixed, so if you are a larger company, producing larger output, the cost per unit will decrease.  e.g. If a T-shirt factory's main cost is the £10,000 to rent to factory each month, and it produces only 1000 shirts a month, each shirt costs £10 to make. But if it scales up and produces 100,000 shirts a month, ...
Post a Comment
Read more

3.4.1 Efficiency

Efficiency   Allocative efficiency  Output at which the marginal utility, or benefit, of a good to a consumer is the same as equal to the marginal cost of producing it.  This is seen on demand/supply curves, where D = S, output is produced as demand = marginal utility and supply = the sum of firms' marginal costs in an industry. On an individual scale, it is where:  AR = MC  Output is where the demand curve cuts the MC curve.   NB: technically occurs where MSB = MSC (if you consider externalities)  Occurs in perfect competition.  Eval - PC markets achieve allocative efficiency where there are no externalities.  LR equilibrium is where P = MPC, so if MSC > MPC, then there is an allocative inefficiency which leads to overproduction and consumption.  Productive efficiency  Output at which a good is produced at the  lowest possible average cost for a firm. This oc...
Post a Comment
Read more

3.3.4 Normal profits, supernormal profits and losses

Normal profits, supernormal profits and losses  Profit maximisation  Occurs at: MC = MR  where MC cuts MR from below (as where it cuts from above is point of profit minimisation)  This is because past this point MR < MC , and each additional good is costing the firm more than it is making. Before that point MR > MC so the firm can increase profit by producing more.  NB - point of prof max can be found using TC and TR:  Normal and supernormal profit and losses Normal profit is profit that covers the opportunity cost of capital and is just sufficient to keep the firm in the market.  Supernormal/economic profit are profits that exceed normal profits.  When AC lies below AR at the point of output, the difference between AR and AC is the supernormal profit on that unit output. The overall supernormal profit is the difference times the quantity sold (Q2 in the above)....
Post a Comment
Read more