🛒principles of microeconomics 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 focuses on the economic inequality within a population, rather than an absolute level of deprivation.

5 Must Know Facts For Your Next Test

  1. Relative poverty is often measured as a percentage of the median income in a country or region, with the most common threshold being 60% of the median income.
  2. Relative poverty can change over time even if absolute living standards are improving, as the median income and overall wealth distribution shift.
  3. Addressing relative poverty often involves policies aimed at reducing income inequality, such as progressive taxation, social welfare programs, and investments in education and job training.
  4. Relative poverty is more prevalent in developed countries, where the overall standard of living is higher, but wealth is distributed unevenly.
  5. Relative poverty is an important consideration in evaluating the effectiveness of economic policies, as it captures the experiences of those who are disadvantaged compared to the broader population.

Review Questions

  • Explain how relative poverty differs from absolute poverty and why it is an important measure of economic well-being.
    • Relative poverty focuses on the economic inequality within a society, comparing an individual's or household's economic status to the overall standard of living, rather than an absolute level of deprivation. This is an important measure because it captures the experiences of those who are disadvantaged compared to the broader population, even if their absolute living standards have improved. Addressing relative poverty often involves policies aimed at reducing income inequality, which can have significant implications for social cohesion and overall economic development.
  • Describe the role of the poverty line in the measurement of relative poverty and how it can change over time.
    • The poverty line is a key component in the measurement of relative poverty, as it represents the minimum level of income or resources deemed necessary to achieve an adequate standard of living in a given country or region. Relative poverty is often measured as a percentage of the median income, with the most common threshold being 60% of the median. This means that the poverty line and the threshold for relative poverty can change over time as the median income and overall wealth distribution shift, even if absolute living standards are improving. Tracking changes in relative poverty is important for evaluating the effectiveness of economic policies and their impact on economic inequality.
  • Analyze how policies aimed at reducing income inequality can contribute to addressing relative poverty, and discuss the potential challenges and trade-offs involved.
    • Policies aimed at reducing income inequality, such as progressive taxation, social welfare programs, and investments in education and job training, can be effective in addressing relative poverty by improving the economic status of those at the lower end of the income distribution. However, implementing these policies can involve trade-offs, such as potential disincentives for economic growth or concerns about the sustainability of social welfare programs. Additionally, the effectiveness of these policies may depend on the specific context and the underlying causes of income inequality within a society. Policymakers must carefully consider the potential impacts on economic efficiency, social cohesion, and overall well-being when designing and implementing strategies to address relative poverty.