Economics » Poverty and Economic Inequality » Drawing the Poverty Line

Key Concepts and Summary

Key Concepts and Summary

Wages are influenced by supply and demand in labor markets, which can lead to very low incomes for some people and very high incomes for others. Poverty and income inequality are not the same thing. Poverty applies to the condition of people who cannot afford the necessities of life. Income inequality refers to the disparity between those with higher and lower incomes. The poverty rate is what percentage of the population lives below the poverty line, which is determined by the amount of income that it takes to purchase the necessities of life. Choosing a poverty line will always be somewhat controversial.

Glossary

income inequality

when one group receives a disproportionate share of total income or wealth than others

poverty

the situation of being below a certain level of income needed for a basic standard of living

poverty line

the specific amount of income needed for a basic standard of living

poverty rate

percentage of the population living below the poverty line

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