Week Name Student number

11 Kiara Munguia S5820219

OTHER THAN IN TABLE ABOVE, DO NOT WRITE ANYTHING ABOVE THE LINE

- Poverty line: The poverty line is like a line drawn in the sand to show how much money or resources
someone needs to have to avoid being considered poor. It's a way for societies to set a basic standard
for what is considered an acceptable level of living. For example, in India, they use estimates of how
much money is needed to buy enough food to get a minimum number of calories to set their poverty
line. Some crucial concerns about poverty measurement:

o Overall expenditure or item-by-item measure? Determining poverty based on whether

someone's spending falls below certain set thresholds or if their income is insufficient is a
complex issue. While income is commonly used, it doesn't always reflect actual consumption,
especially regarding nutrition. People may not prioritize spending on essentials even if they
have the means.
o Absolute or relative? In different countries, what's considered enough to live on can be
different. While poverty lines should consider how needs change depending on where you
are, we still have to think of them as meeting a basic standard in society overall.
o Temporary or chronic? Significant fluctuations in income and consumption affect
chronic/structural or temporary poverty. Temporary poverty occurs because of bad economic
shocks

o Households or individuals? We can't just use the average household spending per person
because the way money is spent within a household is often uneven or unevenly distributed.
o Why a poverty line? These measurements are always just estimates of a standard that is not
very clear-cut, especially because the consequences of long-term deprivation may only
become apparent later on.
- In equations, let p be the poverty line and by m the mean income of the economy.

o Head count ratio: number of people below the poverty line as a fraction of
population doesn't show how far below the poverty line someone's income or
spending is. Those far below the line are actually poorer than those just a bit
below it, but this isn't reflected. Using this method favors people just above the
poverty line because it's easier to help them cross it, even though they're less in need
compared to those much further below.
o Poverty gap ratio: the ratio of the average of income (or
extra consumption) needed to get all poor people to the
poverty line, divided by the mean income (or consumption)
of the society. When we divide by the average income of
an entire country, it might not accurately show the poverty
situation, especially in societies with big income gaps but a lot of wealthy people overall.
Even if the poverty gap ratio seems small, it doesn't mean
that the poor aren't still struggling a lot.
o Income gap ratio: total shortfall of the poor from the
poverty line divided by the shortfall by the total income
required to bring all the poor people to the poverty line.
- The Poverty Gap Ratio (PGR) or Income Gap Ratio (IGR) focus on the intensity of poverty rather
than just counting the number of poor people. Unlike the head count, they measure how much
income or resources are lacking for those below the poverty line. It's important to use all these
measures together to fully understand poverty. Both of them ignore the relative deprivation.
- Poverty, credit and insurance:
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 o Credit: The poor struggle to access loans, hindering their ability to invest in improving their lives.
This is because they often lack valuable assets for collateral and may prioritize immediate needs over
repaying debts. As a result, they miss out on opportunities to invest in productive activities, limiting

Summary week: 11 Name: Kiara Munguia Student number: S5820219

economic growth. If lenders can't profit from these investments, they're less likely to provide loans to
help people seize these opportunities.
o Insurance: People buy insurance to protect against future risks. For successful insurance, risks must be
verifiable and not lead to reckless behavior. Formal insurance often falls short due to moral hazard.
Instead, informal community-based schemes, like those in villages, can be more effective. These
schemes allow for collective self-insurance and are less prone to moral hazard issues, especially for
the poor.
- Energy balance: relationship between a person’s nutritional status and
their capacity to do sustained work
1. Energy input: Food intake provides energy, often linked to
income, especially for the poor who rely on labor income.
2. Resting metabolism: Resting metabolism maintains basic
bodily functions like temperature and heart rate.
3. Energy required for work: Physical labor requires substantial
energy expenditure.
4. Storage and borrowing: Energy balance involves using stored
energy when intake falls short and storing excess energy.
- Initially, most calories maintain basic functions, leaving little for work. As basic needs are met, work capacity
increases. But there's a limit to how much more nutrition can boost work capacity. Good nutrition from
income enhances work capacity, creating a cycle. This suggests a poverty trap in developing countries due to
the interplay between nutrition and work capacity, known as the capacity curve.

- Nutrition and work capacity: Low incomes contribute to low nutrition, which, in turn, hampers the
ability to earn. This creates a vicious circle of poverty in low-income countries. In rich countries, the
overall labor supply prevents a similar cycle because tight labor markets offer high returns, allowing
individuals to improve nutrition over time. Borrowing isn't a straightforward solution due to limited
access to credit and potential Pareto optimality. Employers are unlikely to offer long-term contracts
to capitalize on enhanced work capacity, as employee turnover and market competition limit
incentives for investment. If such long-term relationships existed, they could positively impact
nutrition by making employees costly to replace.
o If a low-income-undernutrition-low-income circle is possible in poor countries, why isn
possible for some groups of people in rich countries?
o Can’t people simply borrow their wzy out of the vicious circle?
o If work capacity affects future work output, won’t employers wish to offer long-run contracts
that take advantage of this?
o If such long-run relarionships were somehow in place for other reasons, would this have an
effect on nutritional status?
 Slave economy
 Industry
 Domestic servants
- The unequal sharing of poverty: In situations of
extreme poverty, equal sharing of resources may not
benefit anyone because the average amounts are too
small. Unequal sharing may help some individuals
to be minimally productive. This raises ethical
dilemmas similar to the "lifeboat ethic," where
limited resources force tough decisions about who
receives assistance. One solution is to randomly
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select who receives resources, ensuring discrimination is not intentional. However, this raises
concerns about systematically denying nourishment and medical care to certain individuals to focus
resources on others.