Causes of Poverty | Economics for GCSE/IGCSE - Year 11 PDF Download

Absolute & Relative Poverty

• Poverty is a state where an individual lacks the financial means to uphold a basic standard of living.
• Economists make a clear distinction between absolute and relative poverty.

Absolute Poverty

• Absolute poverty signifies a condition where individuals are unable to afford fundamental necessities essential for a healthy and secure life.
• These necessities encompass shelter, water, nutrition, clothing, and healthcare.
• In 2022, the World Bank characterized absolute poverty as individuals living on less than $1.90 per day.
• Absolute poverty is more widespread in developing nations compared to developed ones.

Relative Poverty

• Relative poverty defines a scenario where a household's income falls below a specific percentage in comparison to the median income in the economy.
• Poverty within a household is evaluated concerning income levels across other households.
• For instance, in the UK, relative poverty is identified as households earning less than 60% of the median household income.
• As of May 2022, the median monthly household income in the UK was £2072, leading to a relative poverty threshold of any household earning below £1243.20 per month.
• Relative poverty is the primary form of poverty observed in developed countries.

Causes of Poverty

• Poverty stems from a variety of factors. Nevertheless, underdeveloped nations share common traits that can be depicted in a poverty cycle illustration.

• Causes of Low Wages:
  • Low wages often stem from factors like high unemployment rates, engaging in informal employment, possessing inadequate skills, or being part of a primarily agrarian economy.
• Impact of Low Wages on Access to Education and Healthcare:
  • Due to meager earnings, individuals may struggle to afford essential services like education and healthcare. This financial barrier limits access to these critical resources, hindering the development of human capital.
  • As a result, people might find it challenging to maintain good health or recover from illnesses promptly. This, in turn, leads to decreased productivity and shortened life expectancy.
• Link Between Low Productivity and Low Wages:
  • Low productivity perpetuates the cycle of low wages, creating a feedback loop that is challenging to break.
• Effect of Dependency Ratios on Poverty Levels:
  • Communities with a high number of dependents (such as elderly individuals and children) per working household often face heightened levels of poverty.