Study "economics", a flashcard deck on FORKSAI.
How is poverty viewed within the broader context of development economics?
In development economics, poverty is not seen in isolation but as one component of a "triangle of development," which also includes growth and inequality. Achieving human wellbeing, a key aspect of development, requires addressing these interconnected elements.
Why is consumption often preferred over income as a monetary indicator for measuring wellbeing in developing countries?
Consumption is frequently preferred over income for measuring wellbeing because it tends to be more stable over time, directly contributes to utility, and is often easier to measure accurately in developing countries where income sources can fluctuate significantly.
Define the concept of an absolute poverty line.
An absolute poverty line is a threshold based on the monetary cost of meeting basic needs, such as the expense of a food basket that provides sufficient nutritional requirements. Individuals whose income or consumption falls below this line are considered to be in absolute poverty.
What is the current international absolute poverty line used by the World Bank, and what does it signify?
The current international absolute poverty line used by the World Bank is $2.15 a day, measured at 2017 Purchasing Power Parity (PPP). This line serves as a global benchmark for identifying individuals living in extreme poverty based on their daily expenditure or income.
Explain what a poverty trap is and provide an example of a mechanism that can drive it.
A poverty trap is a self-reinforcing mechanism where individuals who are poor tend to remain poor due to a cycle of disadvantage. An example is the nutrition-based trap, where low energy levels from inadequate nutrition lead to low productivity, which in turn perpetuates low income and poor nutrition.
How can credit constraints contribute to a poverty trap?
Credit constraints contribute to a poverty trap by preventing poor individuals from accessing loans or financial capital. This inability to invest in productive assets, education, or businesses can hinder their capacity to increase income and escape poverty, thus reinforcing their poor economic status.
How does the initial level of inequality in a country relate to the effectiveness of growth in reducing poverty?
The initial level of inequality in a country significantly influences how much economic growth actually translates into poverty reduction. High initial inequality can dilute the poverty-reducing effects of growth, as the benefits may disproportionately accrue to the wealthier segments of society.
Describe one way inequality can hinder long-term development through social instability.
Inequality can hinder long-term development by fostering social instability. Significant disparities in wealth and opportunity can increase social unrest, tensions, and the risk of conflict, which disrupts economic activity and diverts resources from productive investments.
Distinguish between inequality of outcome and inequality of opportunity.
Inequality of outcome refers to differences in final economic results, such as income or wealth, among individuals. In contrast, inequality of opportunity refers to differences in the "level playing field," meaning disparities in the initial circumstances or chances available to individuals, often due to factors beyond their control like birth into wealth.
How do social norms influence national approaches to poverty and redistribution?
Social norms play a crucial role in shaping national approaches to poverty and redistribution by influencing societal tolerance for inequality. For instance, societies that prioritize merit and efficiency, like the U.S., may accept higher levels of inequality compared to those that emphasize egalitarianism, like Scandinavian countries.