distinction between absolute poverty and relative poverty

Equity, Redistribution and Poverty: Absolute vs Relative

Learning objectives

• Distinguish between absolute poverty and relative poverty and explain how each is measured.
• Explain the difference between equality and equity, and between equity and efficiency.
• Describe the poverty‑trap mechanism and illustrate it with a simple case‑study.
• Evaluate a range of redistribution policies listed in the Cambridge syllabus (negative income tax, universal/means‑tested benefits, universal basic income, progressive taxation, public provision of health and education, etc.).
• Link the concepts of equity and poverty to other A‑Level topics (government failure, labour‑market intervention, development indicators).

Key concepts

Why equity is preferred to equality in policy

Equality would give every household the same cash grant, regardless of need. In contrast, equity targets resources to those whose income is below a set threshold, ensuring that the poorest can reach a minimum acceptable standard of living. For example, a £100 grant to a household earning £500 a week has a larger impact on wellbeing than the same £100 given to a household earning £2,000 a week.

Definitions of poverty

• Absolute poverty: Inability to meet the basic physical needs for survival (food, shelter, clothing). Measured against a fixed, internationally comparable poverty line.
• Relative poverty: Income or wealth substantially below the average standard of living in a society, restricting participation in typical social activities. Measured against a line set as a proportion of median (or average) income.

When and why each measure is used

Developing countries usually adopt an absolute‑poverty measure because the priority is to eradicate hunger and prevent mortality. Developed economies, where most people can meet basic needs, use a relative‑poverty measure to capture social exclusion and inequality. A rise in national income will typically reduce the number of people in absolute poverty but may leave the proportion in relative poverty unchanged or even increase it if income growth is concentrated at the top.

Measurement approaches

Key formulas (with context)

These formulas are used by economists and exam candidates to set thresholds and to discuss the magnitude of poverty.

• Relative poverty line (RPL) – used to calculate the income level below which a household is deemed relatively poor: $$\text{RPL}=k \times \text{Median Income}$$ where k is the chosen proportion (commonly 0.60). This line moves with the overall distribution of income.
• Absolute poverty line (APL) – derived from a basic‑needs basket: $$\text{APL}= \sum_{i=1}^{n} p_i q_i$$ p_i = price of good i; q_i = quantity required for subsistence. The APL is fixed (apart from inflation adjustments).
• Gini coefficient (G) – summarises inequality: $$G = \frac{A}{A+B}$$ where A is the area between the line of equality and the Lorenz curve, and A+B is the total area under the line of equality.

Poverty‑trap illustration

Consider a low‑skill worker in a developing country:

Government intervention (e.g., free schooling, subsidised health care) can break the cycle by increasing human‑capital investment, thereby raising future earnings.

Illustrative numerical example

Assume a country where the median weekly household income is $800.

1. Relative poverty line (60 % of median): $480 per week.
2. Absolute poverty line (cost of a basic food & shelter basket): $350 per week.

If a household earns $400 per week:

• It is above the absolute poverty line – basic needs may be met.
• It is below the relative poverty line – the household is considered relatively poor and may experience social exclusion.

Redistribution policies (Cambridge syllabus examples)

Connections to other A‑Level topics

Government failure: Redistribution can fail if it creates large dead‑weight losses or if bureaucratic inefficiency leads to misallocation of resources.

Labour‑market intervention: Minimum wages, trade‑union bargaining power and training programmes interact with poverty‑trap dynamics; they can raise the floor of wages (helping absolute poverty) but may also affect employment levels (efficiency).

Development indicators: Poverty measures complement the Human Development Index (HDI) and the Gini coefficient. Reducing absolute poverty raises the HDI, while reducing relative poverty lowers the Gini.

Critical discussion points (exam‑style)

1. Why might a developed country prefer a relative‑poverty measure, whereas a developing country focuses on absolute poverty?
2. How does a rise in national income affect the number of people classified as relatively poor?
3. What are the limitations of using a single poverty line (absolute or relative) to capture the multi‑dimensional nature of poverty?
4. Evaluate the equity‑efficiency trade‑off of one of the policies listed above (e.g., means‑tested benefits).

Suggested diagram (exam tip)

Summary

Absolute poverty measures the inability to satisfy basic physical needs using a fixed standard that is largely independent of the broader income distribution. Relative poverty measures deprivation in relation to the average standard of living, highlighting social exclusion and inequality. Both concepts are essential for understanding the full range of redistribution policies, the equity‑efficiency trade‑off, and the poverty‑trap mechanism. Linking these ideas to government failure, labour‑market intervention and development indicators equips students to analyse and evaluate policies in a coherent, exam‑ready manner.