What Is Economic Inequality?
When you walk around almost any city or town, you can see different sized houses, different types of cars, and different activities occurring. These differences can be indicators of economic inequality, which is the difference between individuals or populations in terms of their wealth, assets, or income. Although most frequently you see differences in economic levels around your town, economic inequality can also be applied on a larger scale to the nations of the world.
Based on economics, the world has been divided into two types of countries. The two categories are based mainly on per capita income, which is the average income per person. The per capita income is calculated by taking the total national income for a country and dividing it by the number of people that live in the country. For example, if a small country has a total national income of $800,000 and a population of 20 people, then the per capita income is $40,000.
The first economic category is developed nations, which can generally be categorized as countries that are more industrialized and have higher per capita income levels. To be considered a developed nation, a country generally has a per capita income around or above $12,000. Also, most developed countries have an average per capita income of approximately $38,000.
As of 2010, the list of developed nations included the United States, Canada, Japan, Republic of Korea, Australia, New Zealand, Scandinavia, Singapore, Taiwan, Israel, countries of Western Europe, and some Arab states. In 2012, the combined populations of these countries accounted for around 1.3 billion people. The populations of developed countries are generally more stable, and it is estimated that they will grow at a steady rate of around 7% over the next 40 years.
In addition to having high per capita income and stable population growth rates, developed nations are also characterized by their use of resources. In developed countries, people consume large amounts of natural resources per person and are estimated to consume almost 88% of the world's resources.
The second economic category is developing nations, which is a broad term that includes countries that are less industrialized and have lower per capita income levels. Developing nations can be divided further into moderately developed or less developed countries.
Moderately developed countries have an approximate per capita income of between $1,000 and $12,000. The average per capita income for moderately developed countries is around $4,000. As of 2012, the list of moderately developed nations is very long and accounts for around 4.9 billion people. Some of the most recognizable countries that are considered moderately developed include Mexico, China, Indonesia, Jordan, Thailand, Fiji, and Ecuador. In addition to these specific countries, many others from Central America, South America, northern and southern Africa, southeastern Asia, Eastern Europe, the former U.S.S.R., and many Arab states, are all considered moderately developed countries.
Less developed countries are the second type of developing nations. They are characterized by having the lowest income, with a general per capita income of approximately less than $1,000. In many of these countries, the average per capita income is even lower, at around $500. The countries listed as less developed are found in eastern, western, and central Africa, India, and other countries in southern Asia. In 2012, there were around 0.8 billion people who lived in these countries and survived on very little income.
Overall, in 2012, developing nations accounted for a total of 5.7 billion people. Even though the income range is quite large, there are still nearly 3 billion people that live on less than $2 a day. Can you imagine living on less than $2 a day? That would be a very hard task for most of us to do. In addition to low income levels, developing countries are also characterized as having high population growth rates. It is estimated that these countries are going to increase by 44% over the next 40 years. By 2050, it is predicted that over 86% of the human population will live in developing countries.
Now, let's review economic inequality and how it relates to developed and developing nations. First, economic inequality is defined as the difference between individuals or populations in terms of their wealth, assets, or income. This difference can be looked at on a small scale in individual regions or on a large scale across the world. When discussing economic inequality on the global scale, it is important to know that countries are divided into two categories based on their per capita income, which is the average income per person. The two categories are developed nations and developing nations.
Developed nations are generally categorized as countries that are more industrialized and have higher per capita income levels. In general, the per capita income of a developed country is above $12,000 and has an average of $38,000. Some common developed countries include the United States, Canada, Japan, Australia, Israel, and countries of Western Europe.
Developing nations are generally categorized as countries that are less industrialized and have lower per capita income levels. This category is divided into moderately developed and less developed countries. Moderately developed countries have an approximate per capita income of between $1,000 and $12,000, with an average of $4,000. The majority of countries on Earth are considered moderately developed, including Mexico, China, Indonesia, Jordan, Thailand, Fiji, and Ecuador. In general, less developed countries have a per capita income of less than $1,000 and an average of $500. These countries are found in eastern, western, and central Africa, India, and other countries in southern Asia.
Although the range of economic inequality around the world is very large, the income of all people is of equal importance. The world and the economies of every country are intertwined and depend on each other. Due to this fact, it is important to remember that not everyone lives at the same economic level, but that everyone can work together to help those less fortunate.
After you've completed this lesson, you should be able to:
- Define economic inequality
- Differentiate between developed and developing nations in terms of economic inequality and provide examples of each
- Identify the two categories of developing nations
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- Define economic inequality. If there was zero economic inequality, what could be said about the citizens of that country?
- What can be said about a country's citizens as economic inequality grows? Specifically, as inequality grows, how does the poorest person's quality of life compare to the wealthiest person's quality of life change?
- What is per capita income? How is it calculated?
- Why is per capita income typically considered to be a good way to measure inequality between groups within a country or inequality between countries?
- What is a developed nation? In addition to describing the general characteristics of a developed nation, also discuss the general rule about how the amount of per capita income is needed for a country to be considered "developed."
- List three examples of developed nations. What are their per capita incomes? For proper comparison, all per capita income values should be presented in the currency of a single country (i.e., in U.S. Dollars).
- What is a developing nation? In addition to describing the general characteristics of a developing nation, also discuss the general rule about how the amount of per capita income is needed for a country to be considered "developing."
- Is a majority of the population living in developed countries or developing countries?
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