Question

Describe how each of these changes is likely to affect poverty and inequality:

a. Incomes rise for low-income and high-income workers, but rise more for the high-income earners.

b. Incomes fall for low-income and high-income workers, but fall more for high-income earners.

Short answer

a. Poverty in the given case will decrease but increase the inequality.

b. In this case, poverty will increase but inequality will decrease.

Step-by-step solution

Concept Introduction (part a)

The number of people who earn less than a specific amount of money, referred to as the poverty line, are considered poor and lack fundamental necessities in life.

Income Inequality is assessed by dividing a country's economic population into several groups and comparing the groupings based on their incomes (high incomes, middle incomes, and low incomes).

Explanation (part a)

In labor markets, demand and supply influence income, resulting in extremely high income for some and extremely low income for others. Poverty refers to persons who are unable to meet their basic necessities. The discrepancy between those with greater and lower salaries is referred to as income inequality.

If both high- and low-income workers' incomes rise, but high-income earners' incomes rise more, poverty will diminish and inequality will rise, as persons with high incomes will continue to earn more, resulting in economic inequality. The number of people living in poverty is expected to rise.

Final answer (part a)

In other words, the rich will get richer and the poor will get poorer. Hence, poverty will decrease but inequality will increase in the given case.

Concept Introduction (part b)

The number of people who earn less than a specific amount of money, referred to as the poverty line, are considered poor and lack fundamental necessities in life.

Income Inequality is assessed by dividing a country's economic population into several groups and comparing the groupings based on their incomes (high incomes, middle incomes, and low incomes).

Explanation (part b)

Poverty refers to persons who are unable to meet their basic necessities. The discrepancy between those with greater and lower salaries is referred to as income inequality.

If low- and high-income workers' incomes diminish, poverty and inequality will rise.

Final answer (part b)

Inequality will decrease when the income difference between different groups of people narrows but poverty will increase.