This essay includes detailed analysis and evaluation on policies that could be implemented by the government to reduce absolute poverty, such as subsidising new enterprises, increasing government spending and the use of microfinance schemes is touched upon.
Explain what is meant by ‘absolute poverty’ ?
Absolute poverty exists when individuals do not have the resources to be able to consume
sufficient necessities to survive. For example, drinking water and proper nutrition. The
international poverty line, the global absolute minimum, has been set at $1.90 per day since
2015. Any individual living below this line is considered to be living under poverty. In the
case of Bangladesh, line 7 of extract 1 states that “rapid population growth was the main
reason for the increase in absolute poverty.” However, due to microfinance institutions
“nearly 2.5 million people are no longer living in absolute poverty,” as stated by line 10 of
extract 1.
Discuss policies, other than microfinance schemes, that could be implemented to reduce
absolute poverty in Bangladesh.
Absolute poverty exists when individuals do not have the resources to be able to consume
the sufficient necessities to survive. Absolute poverty is usually calculated using a poverty
line, which is the minimum amount of income required to survive. Poverty in Bangladesh
has been steadily declining due to microfinance schemes and other policies.
One policy, other than microfinance schemes,
that could be implemented to reduce absolute
poverty in Bangladesh is subsidising new
enterprises. Line 35 of extract 1 states “There
are other ways of reducing absolute poverty,
which include… providing subsidies to
entrepreneurs.” If the Bangladeshi government
were to grant subsidies to entrepreneurs, this
would lower their costs of production. Lower
costs of production would encourage the
production and consumption of the goods and
services produced by these enterprises as
goods and services become cheaper. As seen in
the diagram, the initial equilibrium point is at point P1Q1. As a result of the subsidy, the
supply curve shifts downwards from S1 to S1 + subsidy. This causes a fall in the price from
P1 to P2 and increase in quantity from Q1 to Q2. The new equilibrium point is now at P2Q2.
As prices fall, the demand for goods and services rises. Since the demand for labour is a
derived demand, the more quantity of output demanded, the higher the demand for
workers as well. As more workers are employed by subsidised enterprises, this allows
workers to earn higher incomes, thus be lifted out of poverty. However, this may only be
provided if entrepreneurs use the subsidy granted accordingly. Given that “microfinance
loans have been used to fund consumption and to help people buy the basic necessities
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