CAIE A-Level Economics A2 8.2.3 Absolute Vs Relative Poverty Questions

Income inequality

According to a report by the World Bank, income inequality has declined in some low-income countries in recent years. For example, between 2008 and 2018, the Gini coefficient decreased by more than 5 percentage points in Chile, Colombia and Mexico. In some other countries, such as Ethiopia, India and Indonesia income inequality has remained relatively stable over the past decade while it has increased in China and South Africa.

In low-income countries inequalities of opportunity, in particular the differences in access to education between females and males, appear to pose obstacles to a more equal income distribution. Equality of opportunity becomes an issue of macroeconomic relevance.

Table 1.1 shows Gini coefficients, female/male literacy ratios and the percentages of population in absolute poverty for five countries.

${ }^{1}$ Literacy ratio = female literacy rate $\div$ male literacy rate

It is important to note that income inequality is a complex issue that can be influenced by a wide range of factors, including economic growth, government policies and global economic trends. The government can use fiscal and supply-side policies to influence and change income distribution. These could lead to higher Gross Domestic Product (GDP) and increased economic growth.

While the Gini coefficient is the most widely used measure of income inequality, it is important to note that it has limitations. It does not take into account other factors that contribute to inequality such as wealth inequality, and it may not take into account the full extent of inequality in societies with large informal economies.

Distinguish between absolute poverty and relative poverty.