When talking about economic inequality, what are the criteria for inequality mea

Question

When talking about economic inequality, what are the criteria for inequality measurment? 2. Please briefly analyze the effect of inequality on savings and growth for an extremely poor country and for a medium-income country. 3. A well-known poverty measure Debraj mentioned in his book is the head-count ratio. Please comment on this method of poverty measurement. 4. What are the characteristics of formal and informal urban sectors? 5. The standard labor supply-demand model fails to explain some of the phenomenon labor market. Why?

Explanation / Answer

1) The best criteria of measuring inequality is income inequality, Some people recieve very less amount of money while others get a large share of it.

2) Inequality will result in less savings in poor countries, Even though some rich people in poor countries do have huge money, They are unlikely to save the money in local banks, While poor in the same country have no option to save as they mostly run from hand to mouth.

In medium-income countries rich in their countries have reasonable saving options due to evolved financial products, but poor people saving in those countries is relatively rare, Medium income countries do save quite a large amount of money as they do have good interest rates, Ex : India, Pakistan, Banglades etc.

3) The headcount ratio is the number of people living below poverty line, It is nothing but counting the population below poverty line, It is a great method of measurement because the administration of the country will be forced to alleviate these number of people from below poverty line before moving on

4) Formal and informal urban sectors is nothing but in formal organizaed urban sector most of the businesses are registered and properly regulated, while in informal sector it is not so organized and cannot be regulated, In some countries informal urban sector is more than 80% of the economy

5) Labor market is complex, Formal demand supply model do not take many things into consideration, For example Labor availability in India is subjected to mansoon, If mansoon is successful less labor is available at higher cost, If mansson fails more labor at lower prices.

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