Explain poverty and compare policies to reduce it
Distinguish absolute and relative poverty, analyse causes and assess policies that may alleviate poverty.
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which policy directly changes the distribution of after-tax income?
What you will learn
- Define absolute and relative poverty
- Explain poverty causes
- Evaluate policies to alleviate poverty and redistribute income
Poverty has different thresholds
Absolute poverty concerns income or resources below a threshold for basic needs. Relative poverty compares a person's resources with the standard of living in their society.
Causes can include unemployment, low wages, illness, age and environmental factors. More than one cause may operate, and definitions or thresholds differ across countries and measures.
Policies act through income, services or opportunity
Possible policies include economic growth, education, healthcare, state benefits, progressive taxation and a national minimum wage. Each changes income or access through a different channel.
Evaluate who receives the benefit, how it is funded and whether it reaches people in poverty. A policy may reduce measured poverty without removing its causes or improving every dimension of living standards.
Pause and explain
Why may economic growth fail to reduce poverty for every group?
Worked example
A household's income is unchanged, but the national relative-poverty threshold rises. Explain why its poverty status may change.
Show the worked solution
- Relative poverty depends on a threshold linked to society's income or living standard.
- The household's own income did not rise with the threshold.
- It may now fall below the relative threshold.
Answer The household may be classified as relatively poor because the comparison threshold increased while its income stayed the same. Its absolute resources did not necessarily fall.
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Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A person cannot afford basic food and shelter, while another household can meet basic needs but lives far below typical incomes. Distinguish the poverty concepts that could apply.
Give me a hint
Compare the first case with a basic-needs threshold and the second with social standards.
Compare my reasoning
- The first case may fall below an absolute-needs threshold.
- The second may be relatively poor compared with typical resources.
- The exact classification depends on the chosen measures.
The first could represent absolute poverty, while the second could represent relative poverty. A real classification requires the relevant threshold and data.
Look for these in your work
- Basic-needs case classified
- Societal comparison classified
- Measure dependence stated
A government increases access to healthcare and education. Explain how these policies may reduce poverty beyond immediate cash income.
Give me a hint
Consider health, skills and future earning opportunities.
Compare my reasoning
- Healthcare can protect health and reduce barriers to work.
- Education can build skills and improve access to jobs.
- Outcomes depend on quality, availability and labour demand.
Better healthcare can support participation and reduce illness-related hardship; education can build skills and future opportunities. Effects depend on service quality, access and whether suitable work is available.
Look for these in your work
- Health channel explained
- Education channel explained
- Conditions included
A national minimum wage rises, but some small firms reduce hours. Evaluate its effect on poverty.
Give me a hint
Balance higher hourly pay for covered workers against employment or hours changes.
Compare my reasoning
- Workers who keep their jobs may earn more per hour.
- Reduced hours or hiring could offset some income gains.
- Effects depend on the rate, productivity, prices and enforcement.
The higher wage may raise income for workers who retain hours, but reduced hours or fewer jobs could offset the gain for some. The poverty effect depends on household income, prices, enforcement and the size of the increase.
Look for these in your work
- Pay benefit identified
- Possible cost identified
- Net effect evaluated
Common mistakes
- Treating absolute and relative poverty as interchangeable
- Assuming economic growth benefits all groups equally
- Ignoring the cost or eligibility of anti-poverty policies
What can you explain now?
Which is a possible cause of poverty in the syllabus?
Compare with the explanation
Unemployment
Loss of earned income can reduce a household's resources.
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Make it stick
Which is a possible cause of poverty in the syllabus?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.