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5.2 Poverty

Revise 5.2 Poverty for Economics 0455 (O Level) — revision notes and instant AI marking.

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IGCSE Economics 5.2: Poverty

Cambridge (CIE) Examination

💡 Big Idea: Poverty is a self-reinforcing cycle where low wages trap people in poor education and health, reducing productivity — but targeted policies can break this cycle at any point.

Quick Summary

Absolute Poverty

Individuals cannot afford basic necessities like shelter, water, nutrition, clothing, and healthcare. World Bank (2022): living on < $1.90/day.

Relative Poverty

Household income is a percentage less than median income (e.g., <60% in UK). Contextual to the economy, main form in developed countries.

The Poverty Cycle

Low wages → low human capital → low productivity → low wages (repeats). Breaks at: low economic growth, low education/healthcare, low savings.

Alleviation Policies

Economic growth • Improving education • State benefits • Progressive taxation • Minimum wage. Each targets a different part of the cycle.

Absolute vs. Relative Poverty

What is Poverty?

Poverty is a situation where a person lacks the financial resources to sustain a basic standard of living. Economists recognise two distinct types:

Definition
Absolute Poverty is when individuals cannot afford to acquire the basic necessities for a healthy and safe existence — shelter, water, nutrition, clothing, and healthcare.

Absolute Poverty: The Global Measure

The World Bank (2022) defines absolute poverty as anyone living on less than $1.90 per day. This threshold applies globally and represents the cost of minimal survival.

  • Where it's common: Much more prevalent in developing countries than developed ones.
  • Why it matters: It measures genuine inability to meet survival needs, not relative inequality.
  • Real example: A person in sub-Saharan Africa earning $1.50/day cannot consistently afford safe water, nutritious food, and shelter.
Key Point: Absolute poverty is about meeting basic human needs. If you're in absolute poverty, you literally lack food, shelter, or clean water — not just compared to others, but objectively.
Definition
Relative Poverty is when household income is a certain percentage less than the median household income in the economy.

Relative Poverty: The Inequality Measure

Relative poverty compares your income to everyone else's in your country. It's about inequality within an economy, not survival.

  • Example: The UK defines relative poverty as households earning less than 60% of the median household income.
  • May 2022 UK case:
    • Median UK monthly household income = £2,072
    • 60% of that = £1,243.20
    • Any household earning < £1,243.20/month was in relative poverty
Why the 60% threshold? It's arbitrary but consistent. It captures people who are significantly worse off than the typical household, making them vulnerable to social exclusion — not having what others have (heating, transport, social activities).

Which is More Important?

Absolute Poverty Relative Poverty
Measurement: Measurement:
Focus: Focus:
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Also in the full note
  • The Poverty Cycle: Why Poverty Persists
  • Policies to Alleviate Poverty
  • What to Memorise
  • Concepts Checklist
  • Breaking Down the Cycle: Low Wages at the Centre
  • How the Cycle Turns: A Step-by-Step Journey
  • The Growth & Development Sides
  • The Dependency Ratio
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