Cambridge O Level2281

Poverty

Economics 2281 Chapter Notes

What this chapter covers

Poverty - Definitions of absolute and relative povertyPoverty - Causes of povertyPoverty - Policies to alleviate poverty and redistribute income
ShareWhatsAppPost
Poverty notes

Unable to load PDF

The notes viewer could not load. Please refresh the page.

Read online free. Download a watermarked copy with a free account.

Read the notes

The full Poverty notes as text: skim, search, and jump between subtopics.

~9 min read

In this chapter

  1. 1Absolute vs. Relative Poverty
  2. 2Measuring Poverty and Living Standards
  3. 3Causes of Persistent Poverty
  4. 4Policies to Alleviate Poverty

1. Absolute vs. Relative Poverty

Poverty is a state of deprivation, but it can be understood in two distinct ways. Absolute poverty is the most severe form, where individuals lack the basic resources needed for physical survival. This includes essentials like enough food, clean water, safe shelter, and basic healthcare. It's a universal standard, meaning it's judged by the same benchmark regardless of where a person lives. Relative poverty, on the other hand, is defined in comparison to the living standards of the majority in a particular society. A person is considered relatively poor if their income and resources are significantly lower than the average, preventing them from participating fully in the social and economic life of their community. They might have food and shelter, but cannot afford things that others take for granted, like new clothes, holidays, or access to the internet.

Key term

Absolute Poverty: A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, and education.

Examiner insight

Examiners reward students who can clearly distinguish between the two concepts using specific, well-chosen examples that highlight the difference.

Common pitfall

Confusing relative poverty with general income inequality. Relative poverty specifically refers to those falling below a certain threshold (e.g., 60% of median income), whereas inequality measures the entire income distribution.

Fun fact

In a society where everyone's income doubled overnight, absolute poverty might be eliminated, but relative poverty could remain exactly the same if the distribution of income didn't change.

Worked example 14 marks

Explain the difference between absolute and relative poverty, using an example for each. [4]

  1. 1

    Step 1: Define absolute poverty. This is a lack of basic necessities for survival, measured against a fixed standard. For example, not having enough food to avoid malnutrition. (2 marks)

  2. 2

    Step 2: Define relative poverty. This is having a standard of living significantly below the average for a given society, making it hard to participate fully in that society. For example, a family in the UK that cannot afford to heat their home in winter, even though their income is above the absolute poverty line. (2 marks)

Recap

  • Absolute poverty is about the inability to afford basic survival needs.
  • Relative poverty is about being poor in comparison to others in your society.
  • Absolute poverty is measured against a fixed, universal standard (e.g., income per day).
  • Relative poverty is a comparative measure that changes with a country's average living standards.
  • It is possible for absolute poverty to fall while relative poverty increases in a country.

Quick check

  1. Would a homeless person in London be considered absolutely or relatively poor? Explain your answer.2 marks

2. Measuring Poverty and Living Standards

To tackle poverty, we first need to measure it. The most common measure of absolute poverty is an international poverty line, which is an income threshold. The World Bank currently sets the international line for extreme poverty at $2.15 a day (as of 2022 update). This figure is based on Purchasing Power Parity (PPP), which adjusts for differences in the cost of living between countries. However, poverty is more than just a lack of income. Therefore, economists use composite indicators. The Human Poverty Index (HPI) was one such measure, combining indicators like the probability of not surviving to age 40, adult illiteracy rate, and the percentage of people without access to clean water. It has been replaced by the Multidimensional Poverty Index (MPI), which measures deprivation across health, education, and living standards. Other simple indicators include life expectancy, infant mortality rates, and adult literacy rates.

Key term

Poverty Line: A minimum level of income deemed adequate in a particular country, below which an individual or household is officially considered to be in poverty.

Examiner insight

Candidates should demonstrate awareness that poverty is multidimensional and not just about income, by referencing composite indicators or specific non-monetary indicators like literacy rates.

Common pitfall

Forgetting to mention that income-based poverty lines are adjusted for Purchasing Power Parity (PPP) when making international comparisons.

Worked example 14 marks

In developing countries the standard of living is often lower than in developed countries. Identify four indicators that might confirm this. [4]

  1. 1

    Step 1: Identify the first indicator. A lower GDP per capita would suggest lower average incomes. (1 mark)

  2. 2

    Step 2: Identify the second indicator. A lower life expectancy at birth indicates poorer health outcomes and nutrition. (1 mark)

  3. 3

    Step 3: Identify the third indicator. A higher infant mortality rate also points to deficiencies in healthcare and sanitation. (1 mark)

  4. 4

    Step 4: Identify the fourth indicator. A lower adult literacy rate suggests less access to education and fewer opportunities for skilled work. (1 mark)

Recap

  • Poverty can be measured using income-based lines or multidimensional indices.
  • The international poverty line (e.g., $2.15/day) measures extreme absolute poverty.
  • Purchasing Power Parity (PPP) is used to make poverty lines comparable across countries.
  • Multidimensional measures like the MPI consider deprivations in health, education, and living standards.
  • Simple indicators like life expectancy and literacy rates also provide insights into poverty and living standards.

Quick check

  1. State the current international poverty line set by the World Bank.1 mark
  2. Name two non-income indicators of poverty.2 marks

3. Causes of Persistent Poverty

Poverty is a complex problem with interconnected causes. A key concept is the poverty cycle, where being poor leads to circumstances that keep a person and their family poor. Key causes include:

  1. Unemployment or low-paid work: A lack of jobs or jobs that pay less than a living wage is a direct cause of poverty.
  2. Lack of education and skills: This limits employment opportunities to low-skilled, low-wage jobs, trapping people in poverty.
  3. Poor health and healthcare: Illness can prevent people from working and lead to high medical costs. Malnutrition in childhood can impair development, affecting future earning potential.
  4. Economic structure: Over-dependence on agriculture, which often has low productivity and is vulnerable to weather, can keep national incomes low. This is known as a lack of economic diversification.
  5. Population growth: In developing countries, rapid population growth can strain scarce resources like schools, hospitals, and jobs.
  6. Conflict and corruption: War destroys infrastructure and displaces people, while corruption diverts resources away from public services.

Key term

Poverty Cycle: A self-reinforcing mechanism where poverty and deprivation in one generation lead to poverty and deprivation in the next, often due to factors like poor education and health.

Examiner insight

Higher marks are awarded for answers that explain the links between different causes, for example, how a lack of education leads to low-paid jobs and perpetuates the poverty cycle.

Common pitfall

Simply listing causes of poverty without explaining the mechanism through which they create or sustain it.

Worked example 16 marks

Discuss reasons why poverty might be high in a developing country. [6]

  1. 1

    Step 1: Explain the role of low wages and unemployment. A lack of formal job opportunities or very low pay means many people cannot earn enough to escape poverty. (2 marks)

  2. 2

    Step 2: Explain the impact of poor education and healthcare. A lack of skills restricts people to low-productivity jobs. Poor health reduces the ability to work and can lead to debt, creating a poverty trap. (2 marks)

  3. 3

    Step 3: Explain structural factors. The country may be over-reliant on primary products (like agriculture), which have volatile prices. Rapid population growth can also outstrip the provision of services and jobs. (2 marks)

Recap

  • The poverty cycle is a key concept where poverty becomes self-perpetuating.
  • Major causes of poverty include unemployment, low wages, and lack of skills.
  • Poor health and limited access to education are both a cause and a consequence of poverty.
  • Structural issues like over-dependence on agriculture and rapid population growth contribute to national poverty.
  • Political instability, conflict, and corruption are significant barriers to poverty reduction.

Quick check

  1. Explain what is meant by the 'poverty cycle'.2 marks

4. Policies to Alleviate Poverty

Governments and international organisations use a range of policies to fight poverty. These can be grouped into several categories:

  1. Promoting Economic Growth: Policies that increase a country's GDP, such as investment in infrastructure and encouraging new businesses, can create jobs and raise incomes, lifting people out of poverty.
  1. Improving Human Capital: Investing in education and healthcare is crucial. Free or subsidised schooling and training improve skills and future earning potential. Better healthcare makes the workforce more productive.
  1. Welfare and Social Safety Nets: Governments can provide direct support through unemployment benefits, food stamps, housing assistance, and state pensions. Progressive tax systems, where higher earners pay a larger percentage of their income in tax, can fund these services and reduce income inequality.
  1. Market-Based Approaches: Microfinance provides small loans to poor entrepreneurs to start businesses. Reducing trade barriers can open up new markets for a country's exports, boosting industries and creating jobs.
  1. International Aid and Debt Relief: Richer countries can provide financial aid (e.g., for building schools), technical assistance, or food aid to poorer nations. Cancelling the debts of heavily indebted poor countries frees up government funds to be spent on poverty reduction instead of debt repayments.

Key term

Microfinance: The provision of small-scale loans and other financial services to low-income individuals or groups who lack access to traditional banking.

Examiner insight

Examiners look for a balanced discussion that evaluates the effectiveness and potential drawbacks of different poverty-alleviation policies, rather than just listing them.

Common pitfall

Suggesting 'giving money to the poor' as a policy without specifying the mechanism (e.g., welfare benefits, universal basic income) and considering its economic implications.

Worked example 18 marks

Discuss how the standard of living in a developing country might be improved. [8]

  1. 1

    Step 1: Introduce the first policy area: Investment in education. Explain that providing universal primary education improves literacy and skills, leading to better job prospects and higher future incomes for individuals. This breaks the poverty cycle. (2 marks)

  2. 2

    Step 2: Introduce the second policy area: Investment in healthcare. Explain that improving access to clean water, sanitation, and medical care reduces disease, increases life expectancy, and creates a healthier, more productive workforce. (2 marks)

  3. 3

    Step 3: Introduce a third policy area: Attracting investment. Explain that government policies to encourage foreign direct investment can bring capital, technology, and new jobs, boosting economic growth and overall incomes. (2 marks)

  4. 4

    Step 4: Conclude by evaluating the policies. While all are beneficial, they require significant funding and long-term commitment. A combination of policies targeting both human capital and economic growth is likely to be most effective. (2 marks)

Recap

  • Policies to reduce poverty include promoting economic growth to create jobs.
  • Investing in education and healthcare builds human capital and breaks the poverty cycle.
  • Progressive taxes and welfare benefits can redistribute income and reduce relative poverty.
  • Microfinance gives poor individuals the capital to start their own businesses.
  • International aid and debt relief can provide developing countries with crucial resources.

Quick check

  1. Identify one government policy to reduce relative poverty within a developed country.1 mark

End-of-chapter exercise

Test yourself on the whole chapter. Work through these before moving on.

  1. Define 'absolute poverty' and give one example of a measure used to identify it.2 marks
  2. Explain the difference between absolute poverty and relative poverty.4 marks
  3. Identify and explain two non-income indicators used to measure poverty and living standards.4 marks
  4. Discuss why a country with high economic growth might still have a significant problem with relative poverty.6 marks
  5. Explain two reasons why developing countries often have high levels of absolute poverty.6 marks
  6. Analyse how a lack of education and poor healthcare can contribute to a poverty cycle.8 marks
  7. Discuss the view that government spending on education is the most effective way to reduce poverty in the long run.8 marks
  8. Explain how a progressive tax system and government spending on welfare can help to reduce relative poverty.6 marks
  9. Evaluate the role of international aid in alleviating poverty in developing economies.8 marks
  10. Explain what is meant by 'economic diversification' and why a lack of it can be a cause of poverty for a country.4 marks

Go deeper

Practise and revise with member-only material for this chapter.

Workbook

Exam-style practice questions with full worked solutions.

Unlock with a plan

Chapter at a Glance

A single-page summary of every key idea for fast revision.

Unlock with a plan

Free notes are just the start.

Unlock every Workbook and Chapter at a Glance, and generate your own worksheets and predicted papers.

Explore plans

Related chapters

The nature of the basic economic problemFactors of productionOpportunity costProduction possibility curve (PPC) diagramsThe role of markets in allocating resourcesDemand