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Hey everyone, today we're answering problem number 16 from chapter 14 of the textbook, which asks us to explain the difference between income, inequality, and poverty.
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So this is from our reading in chapter 14 that will most directly explain the difference.
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So i'll read out the section and then we'll go through, and i'll give you like my take on the main differences between the two.
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So it says that poverty levels can be subjective.
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Actually, i'll highlight, poverty levels can be subjective based on the overall income levels of a country.
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Typically, a government measures poverty based on a percentage of the median income.
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Income inequality, however, has to do with the distribution of that income, in terms of which group receives the most or the least income.
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Income inequality involves comparing those with high incomes, medium incomes, and low incomes.
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So there's a comparison, not just looking at those below or near the poverty line.
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In turn, measuring income inequality means dividing the population into various groups, which are called quintiles, and then comparing the use.
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So in the cleared -up feature of this chapter, which literally asks us how we separate or differentiate poverty and income inequality, it says that poverty can change even when inequality does not move at all.
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Imagine a situation in which income for everyone in the population declines by 10%.
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Poverty would rise since the greater share of the population would now fall below the property line.
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However, inequality would be the same because everyone suffered the same proportional loss of 10 % for their income.
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Then in another situation, it is also possible for income inequality to change without the poverty rate changes.
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So this would happen in which a large group of people who already have high incomes, increase in incomes like even more, the income inequality would rise because there would be a greater gap between those of wealthier, that wealthier upper quintile and the next quintile.
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But the number of people below the poverty line wouldn't change because the people below the poverty line aren't even in that fourth centile or the fifth quintile...