Poverty and inequality: a) Absolute and relative poverty

The idea

Absolute poverty occurs when individuals lack the basic necessities for survival, such as food and shelter. It is often measured using a fixed threshold, such as the World Bank's international poverty line of living on less than $2.15 per day. Relative poverty is defined in relation to the average standard of living in a specific society. In the UK, relative poverty is typically measured as living in a household with an income below 60% of the median income. While absolute poverty is more common in developing economies, relative poverty exists in all countries and focuses on social exclusion and inequality. You must be able to distinguish between these two concepts and identify which measure is most appropriate for different economic contexts.

What earns the marks

• Definition of absolute poverty as the inability to afford basic life-sustaining necessities.
• Definition of relative poverty as earning below a certain percentage of the median income for a given country.
• Recognition of the World Bank's $2.15 a day metric as a measure of absolute poverty.
• Understanding that relative poverty is a measure of income inequality within a specific society.

Common mistakes and how to put them right

• Confusing absolute and relative poverty definitions.

  Put it right: Absolute poverty is about survival necessities, whereas relative poverty is about comparison to the societal average.

• Assuming relative poverty can be completely eradicated.

  Put it right: Recognise that as long as income inequality exists, some degree of relative poverty will likely remain, as the median income shifts.

• Using mean income instead of median income to define relative poverty.

  Put it right: Use median income, as the mean can be skewed by a small number of very high earners.

Exam tips

• In multiple-choice questions, look carefully for the words 'median' and 'mean' when identifying the correct definition of relative poverty.
• Be prepared to calculate whether a given income falls below the relative poverty line if provided with the median income figure.
• Remember that economic growth can reduce absolute poverty while simultaneously increasing relative poverty if the gains are unequally distributed.