Question

Determine whether each of the scenarios is possible. [LO 21.3] a. A poverty rate based on a relative measure is high, income mobility is low, and there is perfect income equality. b. A poverty rate based on an absolute measure is high, income mobility is zero, and there is perfect income equality. c. A poverty rate based on an absolute measure is high, income mobility is high, and there is high income equality. d. There is no poverty based on a relative measure, income mobility is high, and there is perfect income equality.

Short answer

Scenarios b, c, and d are possible; scenario a is not.

Step-by-step solution

Understand the Concepts

Before evaluating the scenarios, understand the difference between relative and absolute poverty measures, income mobility, and income equality. A relative poverty measure compares individuals' income to the living standards of the rest of the society. An absolute poverty measure defines poverty by a fixed threshold. Income mobility indicates how easily individuals can move between income levels. Perfect income equality means everyone has the same income.

Analyze Scenario a

Scenario a suggests a high poverty rate based on a relative measure, low income mobility, and perfect income equality. With perfect income equality, everyone has the same income; therefore, it's not possible to have poverty, even in a relative sense. This scenario is impossible.

Analyze Scenario b

Scenario b suggests a high poverty rate based on an absolute measure, zero income mobility, and perfect income equality. With perfect income equality, everyone would earn the same, and if this income is below the absolute poverty line, the scenario is possible. However, income mobility wouldn't affect poverty measure based on equality, making this scenario possible.

Analyze Scenario c

Scenario c involves a high poverty rate based on an absolute measure, high income mobility, and high income equality. High income equality and high income mobility mean smaller income disparities, which can coexist with high absolute poverty if overall income levels are low. This scenario is possible, as high income equality does not preclude high poverty if the equality is at a low income level.

Analyze Scenario d

Scenario d suggests no relative poverty, high income mobility, and perfect income equality. With perfect income equality, there would indeed be no relative poverty, because everyone has the same income. Income mobility does not affect relative poverty or equality. This scenario is possible, as high income mobility can exist with perfect equality.

Key concepts

Relative Poverty

Relative poverty is a concept used to understand poverty in relation to the wealth distribution of the population. It doesn't focus solely on the individual's income but rather how that income compares to others in the same society. This means a person might be considered relatively poor if their income is much less than the average income within the community.
This kind of measurement allows us to see social inequality and the gap between different income levels. As societies grow, the benchmark for relative poverty might change due to increasing wealth and living standards.
One important aspect of relative poverty is that it's sensitive to economic improvements in society. For example, if a community becomes wealthier overall but one group doesn't improve as much, the relative poverty of that group could increase. It underscores economic disparities rather than lack of resources to meet basic needs.
Understanding relative poverty helps policymakers identify groups left behind despite overall economic growth, emphasizing the need for policies that promote fair equality of opportunities.

Absolute Poverty

Absolute poverty measures poverty based on a fixed standard, regardless of location or time. This is typically related to the ability to afford minimum necessities needed for survival, such as food, water, shelter, and healthcare.
Absolute poverty is crucial because it helps quantify how many people live with incomes below what is necessary to maintain a basic standard of living. This threshold does not change unless there is significant alteration to what constitutes basic survival requirements.
In many countries, especially developing ones, absolute poverty benchmarks are used to assess progress in poverty reduction. Governments use this information to allocate resources and form strategies aimed at lifting populations out of this critical state.
It's important to note that while improvements in living standards may alter perceptions of poverty, absolute poverty emphasizes that certain resources are universally essential for well-being.

Income Mobility

Income mobility refers to the ability of individuals or families to move between different income brackets over time. This concept is fundamental in assessing the economic dynamism of a society. High income mobility indicates a society where people have a lot of opportunities to improve their economic positions over their lifetimes.
There are different types of income mobility. Intergenerational mobility refers to changes in social status from parents to their children. Meanwhile, intragenerational mobility looks at income changes within an individual's lifetime.
Understanding income mobility helps in evaluating the effectiveness of social systems, education, and economic policies. High income mobility suggests less persistent income inequality and potentially more equality of opportunity. However, low income mobility may point to structural barriers that keep people trapped in poverty or at the same income level, limiting economic progress.
Promoting income mobility through education, fair labor markets, and equitable policies is essential for fostering an inclusive economy.

Income Equality

Income equality exists when all individuals or households receive the same or very similar income. It represents an ideal state where there is no gap between the rich and poor, implying everyone enjoys similar living standards.
Achieving perfect income equality is rare and complex due to various factors influencing income disparities, such as education, skills, and opportunities. Nevertheless, societies strive towards reducing income inequality to ensure social harmony and economic balance.
There are measures designed to understand and analyze income equality, such as the Gini coefficient, which assesses the distribution of income across a population. These measures help identify how evenly wealth is spread and signal when action is required to correct imbalances.
While absolute equality may be unrealistic, striving for more equal income distribution supports cohesive societies and can reduce extreme disparities that lead to social unrest and divisions. Policies that foster education, healthcare access, and progressive taxation often aim to promote greater income equality.

• Integrating equality-focused policies can help balance economic growth with equitable wealth distribution.
• Addressing systemic inequities is key to fostering environments where income equality can improve.