Chapter 33 – Poverty
Absolute and relative poverty
2. Causes of poverty
3. Possible government measures to
reduce poverty
1.
Cambridge International IGCSE Economics - 0455
1. Absolute and relative poverty
⚫ Absolute poverty: when people do not have
enough income to pay for their basic needs.
⚫ Relative poverty: when people are poor
relative to others in the country.
⚫ Unable to fully participate in the normal activities
of the society they live in.
2. Causes of poverty
a) Unemployment
b) In low-paid work
c) Falling ill
d) Growing old
• Once in poverty = difficult to get out and
people can become trapped in a vicious cycle
of poverty (where one becomes trapped in
poverty).
• Will have worse than average education &
healthcare = reduced productivity,
employment opportunities & income =
reduced prospects for their children
2. Causes of poverty
a) Multidimensional Poverty Index (MPI):
⚫
A measure of poverty based on deprivations in
education, health, and standard of living:
⚫ Education: surveys done to find, e.g. how many
households have no member who has
completed 5 years of schooling.
⚫ 2 indicators: years of schooling & child school
attendance
⚫ Health: e.g. who is malnourished
⚫ 2 indicators: child mortality & nutrition
⚫ Standard of living:
⚫ 6 categories: electricity, improved sanitation,
safe drinking water, flooring, cooking fuel,
assets.
2. Causes of poverty
a) Multidimensional Poverty Index (MPI):
3. Government policies to reduce
poverty
Improving quantity & quality of education: effective
l-t policy (can incr job prospects & earning potential of the
poor)
b) Promoting economic growth: e.g. incr gov
expenditure / reduce interest = incr AD = incr output
& create jobs. Unemployed/underemployed reduces
living stds and output potential.
c) Introducing / raising national minimum wage: used
to tackle low living stds due to low wages.
d) Encouraging more multinational companies to set
up in the country: create more employment
opportunities.
e) Providing benefits / more generous state benefits:
may enable the vulnerable to avoid absolute poverty.
BUT higher unemployment benefits when there are
jobs available will reduce the incentive to work.
a)
3. Government policies to reduce
poverty
A. Measures to raise living standards:
⮚ Improving education & training will
enhance knowledge & earning potential.
This will lead to a reduction in
unemployment, which in turn will incr the
quantity and decr the price of g&s available.
Improving healthcare
Incr & improving housing
Improving working conditions
Reducing pollution
Debate regarding extent of government
intervention:
⮚
⮚
⮚
⮚
⮚
i.
Gov policies are needed, e.g. Legislation, to give
workers holiday entitlement & provision of
housing.
3. Government policies to reduce
poverty
B. Policies on distribution of income &
wealth:
Why enact such policies?
⮚
⮚
⮚
Gov may decide to influence the distr of income
& wealth because of concerns that a very uneven
of such may be socially divisive, i.e. Cause
unfriendliness between the classes.
Ensure everyone has access to a certain std of
living.
⮚ Must ensure that it (gov) does not reduce
incentives to entrepreneurs and workers.
⮚ Ways gov can influence distr:
a.
b.
Taxation
Provision of cash benefits
3. Government policies to reduce
poverty
B. Policies on distribution of income &
wealth:
Progressive taxation make the distr of income
and wealth more even.
b. Provision of unemployment and other cash
benefits help maintain a reasonable std of
living.
c. Provision of free edu and healthcare ensures
everyone has access to these essential services
and help improve living stds.
d. Other gov policies such as labour and
macroeconomic policies that can affect the
distr of income incl:
a.
⚫
Minimum wage legislation