Question

Analyse poverty issues while applying the principles of microeconomics. Look at it from a global stand point.

Answer 1

The comparisons of high and low incomes raise two important issues: economic inequality and poverty. Poverty is measured by the number of individuals who fall below a certain level of income; and income inequality makes a comparison of the share of the total income (or wealth) in society that is received by different group.

First Welfare Theorem states that any competitive equilibrium would result to an efficient allocation, wherein no-one could be made better-off without making anyone worse-off. All resources need to be used in the best possible way. The second welfare theorem has also limited solace. Equity considerations play a small role in this view because any measure favouring the poor is considered costly as it redistribution reduces economic performance and incentives. It may result to unintended consequences such as higher income tax on high earners may create disincentives to work. Giving benefits to the low paid may decrease incentives to work. Thus any support provided to the poor removes resources from the economy, and decreases its overall efficiency and growth.