Definition
Poverty
The inability to meet standard consumption needs. These standards can be absolute or relative.
- We distinguish between two types of poverty:
- Absolute poverty
- Relative poverty
Absolute Poverty
Definition
Absolute poverty
The inability to afford the basic goods and services required to meet essential needs, when measured in relation to a fixed poverty line that indicates the minimum income required to cover basic necessities.
- Typically each country has its national poverty line, which measures the amount of income required to meet basic human needs. And people below that line would be considered to be living in absolute poverty.
- The World Bank, however, has also set its level, where people living below 1.90$ (PPP) per day are considered to be in absolute poverty.
Relative Poverty
Definition
Relative poverty
The inability to afford the standard of goods and services considered typical in their society.
- Relative poverty is closely related with income distribution, as the higher the income inequality, the higher will be the relative poverty, as there would be more people who are relatively poorer from other people.
- Relative poverty, is also a measure of poverty because not only it looks at the ability to buy basic necessities, but also:
- Looks at the ability of the households to afford socially desirable goods/services or lifestyle.
Note
Note that for calculating both Absolute and Relative poverty, we need to calculate the percentage of people living below the poverty line, relative to the total population.
