Week 2 INCOME DISTRIBUTION AND POVERTY ERIDICATION Topic 3:

At the end of this topic, students should be able to: 2 1.Explain the income distribution concept 2.Define inequality of income 3.Discuss factors influencing income inequality 4.Define poverty 5.Define poverty line index 6.Differentiate between absolute, hard core and relative poverty 7.Define Gini coefficient concept 8.Define Lorenz curve 9.Understand the Lorenz curve 10.Discuss poverty eradication policies in urban areas 11.Discuss poverty eradication policies in rural areas

 In economics, income distribution is how a nation’s total GDP is distributed amongst its population.  Income and distribution has always been a central concern of economic theory and economic policy.  National income are divided among groups of individuals, households, social classes, or factors of production, to compute an average for comparison purposes. 3 Income distribution concept

MALAYSIA: MEAN MONTHLY GROSS HOUSEHOLD INCOME BY ETHNIC GROUP (RM) 4 poverty

Inequality of income  Economic inequality (also described as the gap between rich and poor, income inequality, wealth disparity, or wealth and income differences) is the difference between individuals or populations in the distribution of their assets, wealth, or income. 5

Factors influencing income inequality: i. Too focus on economic growth and not the overall development level of a country ii. Macroeconomic factors such as inflation and unemployment iii. Demographic factors iv. Political factors v. Historical, cultural and natural factors 6

What is poverty? 7

Poverty concept  State of being poor: the state of not having enough money to acquire basic needs such as food, clothing, and housing. 8

Poverty Line (PL)  A level of income below which somebody is considered to be living in poverty.  It is based on the price of basic necessities and is usually determined by a government. 9

Types of poverty i. Absolute Poverty ii. Hardcore Poverty (Extreme poverty) iii. Relative Poverty 10

Absolute Poverty A household is considered poor if his income is less than the level of the poverty line (PL) Poverty line indicates the sufficient income to enable these households to meet basic needs in terms of food and non-food items that allow each of its members to function in society. These are households which fail to earn enough to fulfil basic survival needs such as food, clothing and shelter. Households that fall into this category earn average monthly incomes of less than RM460 in Peninsular Malaysia, less than RM630 in Sabah and less than RM590 in Sarawak. 11

Hard core poverty  A household is considered to be extremely poor if the household income is less than half level of the poverty line (PL), which is sufficient income to enable these households to meet basic needs in terms of minimal nutritional food that allows each of its members has a healthy body. 12

Relative poverty  Relative poverty concept encompasses both absolute poverty and extreme poverty. Relative poverty is essentially established the position of a group of poverty than any other group.  Income differences between races, urban and rural, and between region or states. 13

A group whose mean income is less than another group is define as being in relative poverty. There are: Rural dwellers can be considered as being in relative poverty compare to urban dwellers even though their mean income exceeds the PLI. The difference in income between the high and middle income earners. Income differences between races.

Chapter 1 15

Gini coefficient  It was developed by the Italian statistician and sociologist Corrado Gini. The Gini coefficient (also known as the Gini index or Gini ratio) is a measure of statistical dispersion intended to represent the income distribution of a nation's residents. 16

Gini coefficient concepts  Definition: The Gini coefficient is a number between zero and one that is a measure of inequality. An example is the concentration of suppliers in a market or industry. 17

The Lorenz curve 18

The Lorenz curve concepts 19

20 Poverty eradication in rural areas Urban poverty is greater than the poverty in cities. i. Modernize their traditional methods of production. ii. Provide them with support and opportunities to be involved in modern farming and value-added processing of agricultural products. iii. Be involved in non-farm or off-farm activities.

How to overcome poverty in urban areas? 21

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