The Problem of Poverty (AQA A Level Economics)

The Difference Between Relative & Absolute Poverty

• Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy and safe existence

  • These necessities include shelter, water, nutrition, clothing and healthcare

  • In 2022, the World Bank defined absolute poverty as anyone who was living on less than $1.90 a day (the so called international poverty line)

  • Absolute poverty is more prevalent in developing countries than in developed ones

• Relative poverty is a situation where household income is a certain percentage less than the median household income in the economy

  • Poverty in a household is considered relative to income levels in other households

  • Households that are living with less than 50% of the median household income are considered to be in relative poverty

  • Relative poverty is the main form of poverty that occurs in developed countries

Causes & Effects of Poverty

• There are many causes of poverty. However, poor countries have several common characteristics, which can be summarised in a poverty cycle 

Diagram: Poverty Cycle Diagram

Poverty is caused by a lack of both economic growth and human development
 

• Low wages represent the intersection of economic growth and human development and are the major cause of poverty

  • Low wages are usually the result of unemployment, informal employment, a lack of skills, or a primary sector based economy

• Education and healthcare cost money and with lower wage levels, these are not accessible, resulting in poor human capital

  • People find it harder to stay well or recover from illness, resulting in lower productivity and shorter life expectancy

• Low productivity results in low wages, and the cycle continues

• Populations with a large number of dependents (old people and children) for each working household tend to experience higher levels of poverty