Question

a. Enumerate four (4) desirable properties of a good measure of inequality.

b. Outline three (3) reasons why extreme inequality is undesirable.

c. Discuss three (3) appropriate policies for reducing the magnitude and extent of absolute poverty in low income countries.

Answer 1

a) Four properties that any measure of inequality should satisfy are 1)Annonymity or Symmetry-Distribution of income is themost important thing in an economy. This property tries to distinguish between the concept of inequality and that of fiarness .An inequality metric describes how income is distributed . It does not describe who the people of the economy are and the income that is appropriate for them..Second property is homogenity or independence of scale which means that the inequality income metric should not be affected by the .aggregate level of income.Thus richer economies should not be regarded more unequal .Third property is indeoendence of population ie it should not depend on whether the economy has small population or large population.Fourth is the transfer principle which states taht measured inequality should not increase of some income is transferred from the rich person  to the poor person if the order of income rank is maintained.

b).Firstly wealthy people will have control over the lives of the poorer citizens ie where and how they work,what they purchase etc  if income is distributed unequally.Secondly the fairness of the political institutions get affected if a large number of wealthy people contribute in the campaign of the political leaders . These people when they hold political offices will look into the interest of wealthy contributors.Thirdly it becomes difficult to offer equality of opportunity if there is inequality. Poor people find it difficult  to take the larger opportunities provided .

c)Government policies to reduce absolute poverty are -1) Means tested welfare benefits to the poor in the society like food stamp,income support and housing benefit.2) Minimum wages ie setting statutory minimum wages and regulating the  labor market.3) Direct provision of goods and services ie providing goods and services directly to the people like subsidising housing, providing free education,providing free healthcare etc.