Cambridge IGCSE and O Level Economics
Chapter 33: Poverty
Suggested answers to individual and group activities
Group activities
1 c, e and f.
2 a
The study includes the aspects of absolute poverty but also considers relative poverty;
for example, eating out. It mentions that it is the minimum income required for people to
participate in society and so it is a comparative measure. As a country gets richer, people’s
incomes have to rise so that they can continue to experience the activities that other people
in the country are participating in.
b The passage suggests that the level of income UK pensioners received in this period was
relatively high. This income could have come from private pensions, state pensions and from
financial investments they had undertaken.
c It would not be easy to get agreement on what is ‘the minimum income standard’. People will
disagree about what people need to spend money on in order to participate in society. For
example, will people feel excluded from a minimum acceptable way of life in the country they
live in if they cannot afford to buy and run a car?
3 a
Eating nutritious food will increase the health of the children of the school. If they are
attending school, this will be likely to increase their performance at school. This would
increase their skills and qualifications and their chances of gaining a good job and good
income. Whether or not they are attending school, being healthier is likely to make them more
1
productive and to have less time off work due to illness should they gain employment. This
would increase their earnings.
b The adults may be unemployed or sick so they may not be able to increase their household
income despite the increase in economic growth.
c Poverty can hold back economic growth in a number of ways. Poor people are likely to have
less access to education, especially higher education and healthcare and consequently they
are likely to be less productive workers. High levels of poverty can discourage foreign firms
from investing in a country. A significant level of poverty in a country is likely to mean that tax
revenue will be low and therefore it will not have much money to spend on developing the
economy.
Suggested answers to multiple choice questions and
four-part question
Multiple choice questions
1 C
A reduction in the top rates of tax would increase the income of the rich and widen the gap
between them and the poor. A, B and D would all be likely to raise the income of the poor and
hence narrow the gap.
2 B
As the rich are in a better position to save than the poor, they can build up their assets, including
shares and property. The possibility of earning high incomes and accumulating wealth is likely
to act as an incentive for entrepreneurs and workers. Those with high incomes spend more in
absolute terms but a smaller proportion of their income as compared to the poor. Also, those
with low incomes do not often inherit wealth.
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Cambridge IGCSE and O Level Economics
3 B
A rise in the income of the poor should reduce absolute poverty. If the income of the rich rises by
more than that of the poor, the gap will increase. A would reduce absolute and relative poverty.
C would increase absolute and relative poverty. D would increase absolute poverty but reduce
relative poverty.
4 C
Granting subsidies to builders of low-cost housing should increase the supply of such housing,
reduce its cost and hence make it more accessible to the poor. A would be likely to reduce
the quantity and possibly the quality of education available to the poor. B would reduce total
demand and employment. D would make food more expensive and would lead the poor to
spend a higher proportion of their income on food.
Four-part question
a Absolute poverty occurs when people do not have enough income to be able to afford adequate
food, housing, shelter and other basic needs.
b The children of the poor are likely to be poor as adults because they are likely to receive less
education. This may be because their parents are not able to afford any charges that have to be
paid. Even if education is provided free by the government, their parents may need them to start
work as soon as possible to help support the family. Being less educated will reduce their skills
and qualifications and so their earning potential.
The children of the poor may also suffer worse health. This is because they are likely to have less
nutritious food and live in poor housing. This will reduce their fitness and so their productivity
and earning potential.
c Fiscal policy could reduce poverty by raising tax revenue, which is then used to help the poor.
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Progressive taxation would fall more heavily on the poor. For example, income up to a certain
level could be tax-free so that the poor would not pay any tax. Above the tax threshold, income
tax rates could rise. The tax revenue raised could be used to provide benefits to the poor. These
could be in the form of cash benefits. The tax revenue could also be used to finance education
and training and healthcare for the poor. This could increase their employment opportunities.
The chances of the poor could also be helped by the government adopting an expansionary
fiscal policy. Lowering taxes and increasing government spending should increase total demand.
Higher total demand would be expected to encourage firms to increase their output. To produce
more, the firms would be likely to take on more workers.
d The introduction of a national minimum wage could reduce absolute poverty. Some workers
may have been receiving wages that were so low that they could not afford decent housing,
sufficiently nutritious food and adequate clothing for themselves and their families. If the
national minimum wage is set above their current wage rate and they stay in employment, they
will have more purchasing power.
If low-paid workers spend more, there will be an increase in total demand. This may create more
jobs and may raise wages further. In addition, employers may provide more training to the low-
paid to ensure a good return from their employment.
The introduction of a national minimum wage may stimulate other workers to press for wage
rises to maintain the difference between their pay and the pay of the low-paid. If their wage
differentials are maintained, absolute poverty may be reduced but relative pay may stay the
same.
The main beneficiaries of a national minimum wage may also not be the poor. Some of those
on low pay may be in relatively rich households. They may be the partner or child of a well-paid
worker. Some low-paid workers may not receive the national minimum wage if they work in the
informal economy.
© Cambridge University Press 2018
Cambridge IGCSE and O Level Economics
Low pay is one but not the only cause of poverty. Some of the poor are not in work: a number
may be unemployed and some may be retired. A national minimum wage will not help them
directly although if it does lead to a rise in GDP, more tax revenue may be raised and some of this
could be used to increase state benefits.
There is also the possibility that the introduction of a national minimum wage could increase
poverty. This may occur if employers respond to its introduction by dismissing some of their
workers. Unemployment is a significant cause of poverty and so the effect that the policy
measure has on the number of people employed will be a major influence on whether it will
reduce poverty. The other factors that will influence the outcome include at what level it is set,
how other workers respond and what proportion of the poor are covered by the measure.
© Cambridge University Press 2018
