💸principles of economics review

key term - Relative Poverty

Definition

Relative poverty is a measure of poverty that compares an individual's or household's economic status to the overall standard of living in a society. It is defined not by an absolute level of income or resources, but by the individual's position in the income distribution relative to others in that society.

5 Must Know Facts For Your Next Test

  1. Relative poverty is often measured as the percentage of the population living below a certain percentage (e.g., 50% or 60%) of the median household income in a society.
  2. Relative poverty can change over time even if absolute living standards improve, as the income distribution and societal norms shift.
  3. Relative poverty is more sensitive to changes in the overall income distribution, while absolute poverty is more focused on meeting basic needs.
  4. Addressing relative poverty often involves policies aimed at reducing income inequality, such as progressive taxation, social welfare programs, and investment in education and job opportunities.
  5. Relative poverty is a more multidimensional concept than absolute poverty, as it considers an individual's or household's position in the social hierarchy and access to resources beyond just income.

Review Questions

  • Explain how the concept of relative poverty differs from absolute poverty and how it is measured.
    • Relative poverty is a measure of poverty that compares an individual's or household's economic status to the overall standard of living in a society, rather than defining a minimum level of income or resources needed to meet basic needs. It is often measured as the percentage of the population living below a certain percentage (e.g., 50% or 60%) of the median household income in a society. This makes relative poverty more sensitive to changes in the income distribution and societal norms, whereas absolute poverty is more focused on meeting a fixed set of basic needs.
  • Describe the potential policy implications of addressing relative poverty compared to addressing absolute poverty.
    • Addressing relative poverty often involves policies aimed at reducing income inequality, such as progressive taxation, social welfare programs, and investment in education and job opportunities. These policies are designed to improve the overall distribution of income and resources within a society, rather than just focusing on meeting a minimum threshold of basic needs. In contrast, policies to address absolute poverty may be more targeted towards providing basic necessities, such as food, shelter, and healthcare, to those living below the poverty line. The choice between addressing relative or absolute poverty depends on the specific goals and priorities of policymakers, as well as the underlying causes and manifestations of poverty in a given society.
  • Analyze how changes in the overall income distribution within a society can affect the measurement and perception of relative poverty, even if absolute living standards improve.
    • $$\text{Relative poverty} = \frac{\text{Individuals/households below X\% of median income}}{\text{Total population}} \times 100$$ As the overall income distribution in a society changes, the median income level can shift, even if absolute living standards are improving. This means that the proportion of the population considered to be in relative poverty can change, even if their actual living conditions have improved. For example, if the median income rises but the incomes of the poorest individuals or households do not keep pace, the relative poverty rate may increase despite an overall improvement in absolute living standards. Conversely, if incomes at the lower end of the distribution rise faster than the median, the relative poverty rate may decrease, even if some individuals are still struggling to meet their basic needs. Understanding these nuances is crucial when interpreting and addressing relative poverty in a society.