Q: What is absolute poverty?
Income below a fixed threshold (e.g. $2 per day). Global poverty line
Q: What is relative poverty?
Income significantly below the national average. It reflects inequality within a country.
Q: What is the poverty gap?
A: The total amount of money needed to raise all incomes to the poverty line.
🔸 Example: Poverty line = $2/day A person earns $1.20 → Poverty gap = $0.80
Q: What is the Lorenz curve?
Shows how income is distributed across a population
Compares perfect equality (45° line) vs. actual income distribution
👉 The more bowed the curve → the more unequal the distribution
Q: What does the Gini coefficient measure?
A: Income inequality on a scale from 0 (perfect equality) to 1 (maximum inequality).
Gini Value
Meaning
0
Perfect equality
1
Maximum inequality
🔸 Example:
Gini = 0.25 → relatively equal
Gini = 0.60 → high inequality
Q: Why do some poor countries have a low Gini coefficient?
A: Because everyone is similarly poor – there’s little variation in income to measure.
Q: What is the Kuznets curve?
A: A hypothesis that inequality first increases, then decreases during the process of economic development.
Q: What shape does the Kuznets curve have?
A: An inverted U-shape (inequality ↑ in early development, then ↓ later)
Q: Why does inequality increase in early development according to Kuznets?
A: Because industrialization benefits a small group first (e.g. urban workers), while rural areas lag behind.
Q: Why does inequality decrease later?
A: Due to broader access to education, urbanization, and redistributive policies (e.g. taxes, welfare).
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