- Absolute poverty refers to severe deprivation of basic human needs, including food, sanitation, safe drinking water, shelter and education.
- Relative poverty occurs when an income is below a specified proportion of average income (e.g. below 60% of median income in UK).
- Absolute poverty can be reduced when GDP increases, so tax revenue can be used on health, education and welfare payments.
- Relative poverty can be reduced through welfare payments and progressive taxation.
- Income is a flow of money.
- Wealth is a stock of assets.
- The distribution of income is influenced by: MRP/ education and skills, wage differentials, earned and unearned income (owning factors of production, financial assets etc.)
- The distribution of wealth is influenced by: age (wealth is an accumulation of income over time), inheritance/ the ability to benefit from capital gains (e.g. house price rises), and income is taxed much more heavily than wealth.
- Wealth and income inequality between countries may be caused by natural disasters, natural resources, wars, corruption.
- The Lorenz curve shows the cumulative percentage of income against the cumulative percentage of the population, against a straight, diagonal line of equality through the origin.
- The Gini Coefficient is a measure of the area between the two curves, divided by the total area.
- Kuznets: inequality increases during the industrial stage and then decreases when the economy becomes service-based.
- Piketty: inequality rises as the rate of return on capital grows faster than salaries.
- Capitalism: leads to inequality due to: wage differentials, skill differences, people owning assets.
- 😄: capitalism creates incentives to take risk.
- 🙁: problems with efficiency and social justice.