THE PROBLEM OF POVERTY: AQA Economics Specification Topic 4.1

Topic 4.1 - Individuals, firms, markets and market failure

Snapshot of the AQA syllabus topic area we’ll be covering in this post.

THE PROBLEM OF POVERTY: poverty and inequality

AQA students must understand the following content [taken from the syllabus]

• The difference between relative and absolute poverty.

• The causes and effects of poverty.

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ESSENTIAL INFORMATION

[NOTE: supplementary knowledge, supporting diagrams and questions at the end]

INTRODUCTION

In the previous post, we discussed the topic of income and wealth distribution and how it can be a consequence and cause of market failure.

Poverty is still a serious problem that affects communities all around the world. In this post, we will focus on the problem of poverty and its role within the field of economics.

We’ll carefully examine the idea of poverty and make a distinction between absolute and relative poverty. Additionally, we examine poverty's roots and effects to provide light on the complicated problems it poses for both individuals and entire nations.

RELATIVE VS ABSOLUTE POVERTY

Poverty can be categorised into relative and absolute forms.

Relative poverty: In order to qualify as being in relative poverty, an individual or household must have much less income or resources than the average member of that society.

Absolute poverty: Absolute poverty, on the other hand, denotes a condition of extreme deprivation and is characterised by a lack of access to necessities including food, shelter, healthcare, and education.

CAUSES OF POVERTY

Poverty arises from a multitude of interconnected factors, including:

a. Lack of education and skills: Lack of access to high-quality education and skill-building programmes impedes upward mobility and diminishes job opportunities.

b. Unemployment and low wages: Low pay and a lack of employment possibilities keep people and families in a cycle of poverty.

c. Inadequate social safety nets: Social protection programmes that are weak or insufficient fail to support vulnerable communities enough, escalating poverty levels.

d. Discrimination and inequality: By limiting possibilities for particular groups, social disparities based on gender, race, and other characteristics can prolong poverty.

e. Economic factors: Poverty may be exacerbated by structural imbalances, economic downturns, and unequal resource allocation.

EFFECTS OF POVERTY

The consequences of poverty extend beyond material deprivation, impacting various aspects of individuals' lives and society:

a. Health and well-being: Poverty is linked to greater mortality rates, lower access to healthcare, increased risk of malnutrition, and generally worse health outcomes.

b. Education and skills gap: Children from disadvantaged homes frequently encounter obstacles to receiving a good education, which limits their chances of moving up the social ladder and perpetuates intergenerational poverty.

c. Social exclusion: Marginalisation, social stigma, and minimal involvement in community life can all be effects of poverty.

d. Economic costs: High poverty rates inhibit economic growth because they limit the potential of human capital and keep consumption levels low.

e. Crime and social unrest: The safety and well-being of communities can be threatened by concentrated poverty, which can increase crime and social instability.

CONCLUSION

To address poverty, one must have a thorough awareness of both its relative and absolute dimensions. Societies can create efficient policies and interventions to lessen the hardship of the poor, increasing social inclusion, economic progress, and general well-being, by identifying the causes and effects of poverty. In order to promote a more just and prosperous future for all, efforts to eliminate poverty must include education, the creation of employment, social safety nets, and equitable resource distribution.

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SUPPLEMENTARY KNOWLEDGE

• Relative poverty in the UK is defined as a household that earns less than 60% of the median household income (after costs) during that financial

• Absolute poverty in the UK is defined as earning 60% of the median income that stood in the year 2010/2011 (https://cpag.org.uk/child-poverty/measuring-poverty)

• According to the United Nations, “absolute poverty is a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to social services.”

table to show the UK poverty line in 2020 - UK poverty line for a single, working-age individual is about £141 a week

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SUPPORTING QUESTIONS

Question 1: What is the role of income inequality in perpetuating poverty?

Answer:

The persistence of poverty is significantly influenced by income inequalities. When there is a significant income disparity between the rich and the poor in a society, it might limit prospects for upward mobility and make it more difficult for those who are poor to get out of their personal predicaments. Higher income inequality levels can concentrate wealth and resources in the hands of a select few, limiting access to necessary resources and chances for economic progress for the majority.

Question 2: How does poverty affect economic growth?

Answer:

Economic growth might suffer due to the negative effects that poverty brings to a country. When stuck in poverty, people are simply not able to be as productive as they can possibly be and fully participate in the economy. Moreover, the development of human capital is hampered by limited access to healthcare, education, and basic resources, which also lowers the potential for creativity and entrepreneurship.

Poverty can result in higher societal costs like higher crime rates and medical bills, which strains the government's resources, meaning government budget deficits are likely to grow. Over time, government debt could rise which means a higher tax burden will need to be placed on future generations - this amplifies the problem further down the line.

If a country fights poverty through carefully considered and economically sound government policy, then people’s productive potential can be fully utilised, domestic demand can rise and this can give rise to sustainable economic growth and development.