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Types of poverty

Poverty is divided into two types.

Absolute poverty

When poverty is taken in absolute terms and is not related to the distribution of income or consumption expenditure distribution, it is absolute poverty. In this case, a minimum physical quantity of cereals, pulses, milk, butter, etc. and the price quotations convert the physical quantities into monetary terms. Then, aggregating all these price quotations, a figure expressing ‘Per capita Consumption Expenditure’ (PCE) per month is determined. Now, if the persons ‘PCE’ remains below the fixed level, they are said to be below the poverty line. The magnitude of poverty is expressed in terms of absolute number of poor persons in the society. This concept is relevant for less-developed countries. In India, we use the concept of absolute poverty to measure poverty.
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Relative poverty

When poverty is taken in relative terms and is related to the distribution of income or consumption expenditure, it is relative poverty. This concept is more relevant for the developed countries. Here, the income level of different groups is estimated and a comparison of the levels of living of the top 5 to 10% with the bottom 5 to 10% of the population reflects the relative standard of poverty. Gini co-efficient is used to measure poverty in the relative sense.

Note: The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income). This is the most commonly used measure of inequality. The coefficient varies between 0, which reflects complete equality and 1, which indicates complete inequality (one person has all the income or consumption and, all others have none).

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