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Chapter 15: Q. 16 (page 377)

What is the difference between poverty and income inequality?

Short Answer

Expert verified

Poverty occurs when a portion of the population of a country lives below the poverty line and income inequality refers to an unequal distribution of income among a population.

Step by step solution

01

Step 1. Poverty and Income inequality

Poverty and income inequality are two main important concepts in the economics of wealth and wealth distribution. The global economy has been experiencing these two scenarios for decades after decades. These two concepts are closely related in the sense that poverty is actually the result of income inequality. But the reverse is not true.

02

Step 2. Difference between poverty and income inequality

Poverty is a state where a portion of the population in a country lives below the level of income, termed as the 'Poverty line', that is required for having a basic standard of living in that country.

Income inequality, on the other hand, refers to an uneven distribution of income throughout the population of a country. It can be seen as the differences in the share of the total income of distinct groups.

If the maximum of the total income of a country comes from a small group of the population of the country leaving the rest to share a small portion of the total income of the whole population of the country, then it is considered as having a higher rate of income inequality in the country. This unequal distribution of income among the population of a country results in the existence of poverty in the country.

Poverty is the result of income inequality, but income inequality is not the result of poverty.

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Most popular questions from this chapter

Explain how you would create a government

program that would give an incentive for labor to increase hours and keep labor from falling into the poverty trap.

A group of 10 people have the following annual incomes: \(24,000, \)18,000, \(50,000, \)100,000, \(12,000, \)36,000, \(80,000, \)10,000, \(24,000, \)16,000. Calculate the share of total income that each quintile receives from this income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution?

Exercise 15.2 and Exercise 15.3 asked you to

describe the labor-leisure tradeoff for Jonathon. Since, in the first example, there is no monetary incentive for

Jonathon to work, explain why he may choose to work

anyway. Explain what the opportunity costs of working

and not working might be for Jonathon in each example.

Using your tables and graphs from Exercise 15.2 and Exercise 15.3, analyze how the government welfare system affects Jonathan’s incentive to work.

What is the safety net?

If a family of three earned $20,000, would they

be able to make ends meet given the official poverty threshold?
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