IGCSE Economics Notes

• Poverty is a condition where people lack sufficient income and wealth for a basic standard of living. 

• Poverty leads to various social and economic problems, including poor health, deaths, crime, high unemployment, welfare dependency, and lower national output. 

• According to the United Nations, poverty involves:

• Hunger and malnutrition.

• Ill health and mortality due to illness.

• Limited or no access to education and essential services.

• Homelessness and inadequate housing.

• Unsafe environments.

• Social discrimination and exclusion.

• Absolute poverty

  • • refers to extreme and undeniable poverty. 

    • People in absolute poverty have minimal income, which is entirely spent on basic survival needs such as food, clothing, and shelter. 

    • often leads to hunger, malnutrition, and homelessness.

    • The World Bank's most common income threshold for absolute poverty is $1.25 a day.  

• Relative poverty

  • • measure of poverty that compares an individual's standard of living to the average of society, rather than being an absolute measure. 

    • people in absolute poverty are unquestionably impoverished, while those in relative poverty have a lower standard of living compared to the average person. 

    • measures how much a person's financial resources fall below the average income of their country's population.  

Unemployment: 

1. • People in poverty often face high rates of unemployment due to factors such as low literacy, lack of skills, and poor health. 

   • Low Labour Productivity - measures the efficiency of labor in the production process, such as output per worker. 

     • • • Less economically developed countries (LEDCs) often experience low labour productivity, making it difficult for individuals to escape poverty. This leads to low GDP per capita.

Low Wages: 

1. • Countries with low wages and a high proportion of unskilled workers tend to have lower GDP per capita (average income level), limiting consumption and investment, contributing to poverty.

Illness: 

1. • Malnutrition and lack of healthcare contribute to illnesses, which, in turn, reduce life expectancy in a country. Lower life expectancy indicates a higher degree of poverty in a country. 

Age: 

1. • Child Poverty: Extreme poverty often leads to child labor, as impoverished parents are forced to allow their children to work instead of receiving an education. Child labor perpetuates the cycle of poverty. 

   • Elderly Poverty: Despite increased life expectancy, many elderly individuals lack the income necessary to sustain their standard of living. 

   • Intergenerational Poverty: The cycle of poverty can be perpetuated across generations, as children growing up in impoverished households are more likely to experience poverty themselves in adulthood. 

Poor Healthcare: 

1. • Insufficient investment in health services is a significant factor hindering a country's ability to develop and escape poverty. 

   • Limited Access to Healthcare: Inadequate healthcare infrastructure, shortage of medical personnel, and lack of healthcare facilities restrict access to quality healthcare, exacerbating health issues and perpetuating poverty. 

Low literacy rates: measure the proportion of the population aged 15 and above who can read and write, contribute to poverty.  

1. • Limited literacy skills hinder individuals' ability to find better job prospects and contribute effectively to the economy. 

   • The negative impact on employment and productivity due to low literacy rates results in lower GDP in a country, making it difficult to eradicate poverty. 

High Population Growth:  

1. • Sharing limited resources among a growing population places strain on a country's ability to lift itself out of poverty. Insufficient resources, such as food, water, healthcare, and education, can hinder development and perpetuate poverty. 

   • Limited job opportunities can make it difficult to provide adequate employment, healthcare, and education for the growing population, leading to poverty. 

Poor Infrastructure: 

1. • Inadequate infrastructure leads to poor economic development, trade, and connectivity, disabling efficient movement of goods, services, and information. 

Low Foreign Direct Investment (FDI): 

1. • Foreign direct investment, which involves cross-border investments by multinational companies and other investors, can contribute to economic growth by providing capital, technology, job opportunities, and access to international markets. 

   • Poor countries with limited economic growth and inadequate infrastructure often struggle to attract foreign direct investment. High perceived risks and low financial returns deter investors from investing in these countries. 

High Public Debt: 

1. • High public debt, referring to the money owed by the government, is a significant factor affecting a country's standard of living and contributing to poverty. 

   • The higher the public debt, the lower a country's standard of living tends to be. Governments must allocate funds to repay loans and interest payments, reducing the resources available for investment in the economy and poverty alleviation. 

Reliance on Primary Sector Output: 

1. • Primary sector products, compared to manufactured goods and services in the tertiary sector, tend to have lower prices and profit margins. This limits income generation and economic development. 

   • Over-reliance on the primary sector hampers economic diversification, as countries miss out on the potential benefits of developing secondary and tertiary sectors. 

Promoting Economic Growth

• • Expansionary policies, such as lower taxes, reduced interest rates, and lower exchange rates, can stimulate consumer spending, investment, and export sales, leading to economic growth. Hence, increasing GDPper capita.

Improving Education and skill development

• • Promoting access to quality education and skill development programs can enhance individuals' employability, improving their earning potential. Narrows the gap between the rich and the poor, thus reducing poverty. 

Generous State Benefits

• • Government provision of welfare benefits, such as unemployment benefits, state pension funds for the elderly, and child benefits, offers financial assistance to help the unemployed and disadvantaged meet their basic needs. 

  • These benefits contribute to income redistribution and alleviate poverty by ensuring access to essential resources. 

Progressive Tax Systems

• • Progressive tax systems involve higher-income groups paying a higher percentage of their incomes in taxes, fostering a fairer distribution of resources.  

  • This approach reduces the wealth and income gap between the rich and the poor within a country. 

  • The tax proceeds collected from higher-income groups can be used to provide social welfare programs and essential services, helping to alleviate poverty and redistribute income. 

Introducing or Increasing a National Minimum Wage 

• • Establishes a legally mandated minimum wage rate that employers must pay to their workers. 

  • provides a more sustainable income for workers, reducing the risk of falling below the poverty line. 

  • help reduce income inequality by narrowing the wage gap between low-wage and higher-wage workers. 

  • can lead to increased disposable income for low-income workers, stimulating consumer spending and boosting the economy.

  • can reduce the need for government assistance programs, shifting individuals from reliance on social welfare to self-sufficiency.