Economic Development · 2 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 5% of your exam marks.
New emphasis in the 2027 syllabus; absolute and relative poverty, its causes and policies to alleviate it are now examined as a distinct topic. Guidance based on specimen materials.
Governments use a mix of policies. Some raise the incomes of the poor directly; others raise their long-run earning power; others transfer income from the better-off. The syllabus names six.
Higher output raises the demand for labour, creating jobs and raising wages, which lifts incomes at the bottom. Growth also raises tax revenue, giving the government more to spend on services for the poor. The catch is that growth helps only if its benefits reach low-income households rather than concentrating at the top.
Better schooling and training raise workers' skills and productivity, so they can move into higher-paid, more secure jobs. This attacks the poverty cycle at its root, but the gains are long-term because it takes years for education to feed through into earnings.
Better healthcare keeps people well enough to work consistently and for more years, and removes the medical costs that can push a household into poverty. A healthier workforce is also more productive, raising wages over time. Like education, healthcare provision builds human capital and works mainly in the long run.
Unemployment benefit, pensions and other welfare payments give income to those who cannot earn enough themselves, letting them afford food, housing and other essentials. Benefits act fast and directly, but they are costly to fund and, if set too high relative to wages, can weaken the incentive to take low-paid work.
A progressive tax takes a larger percentage of income from high earners than from low earners. It narrows the income gap directly and raises revenue that can fund benefits and public services for the poor. Set too high, though, it may discourage effort, enterprise and investment.
Explain two policies to reduce poverty (4 marks)
What comes up: a 4-mark "Explain two policies a government could use to reduce poverty" — one mark for identifying each policy, one mark for explaining how it reduces poverty.
Write (two marks each, pick two): (1) A national minimum wage (1) sets a legal floor on pay, directly raising the income of low-paid workers so they can afford more necessities (1). (2) More generous state benefits (1) give income to those out of work, enabling them to cover essentials such as food and housing (1). (3) Improved education or healthcare (1) raises workers' skills, productivity and earning power, helping them into better-paid work and out of the poverty cycle (1). (4) Progressive taxation (1) takes more from high earners and can fund transfers to the poor, narrowing the income gap (1).
Watch out: each policy needs an identification mark and an explanation mark. Naming a policy without saying how it raises incomes or reduces poverty earns only 1 mark, and a brief note on a drawback strengthens any "discuss" version of the question.
Discuss whether a policy is the best way to reduce poverty (8 marks)
What comes up: an 8-mark "Discuss whether or not [a named policy, e.g. raising the minimum wage / increasing benefits] is the best way to reduce poverty." Both sides plus a judgement are needed.
Write: In favour: the policy raises the incomes of the poor (develop the chain for the named policy, e.g. a higher minimum wage lifts the pay of the lowest earners so they can afford more necessities). Against / better alternatives: note the policy's drawback (e.g. a minimum wage set too high may cause job losses; higher benefits are costly and may reduce work incentives) and compare it with alternatives such as education, healthcare or economic growth, which raise long-run earning power. Judgement: state which approach is more effective and why, for example that direct measures relieve poverty quickly while education and growth reduce it more permanently, so a combination works best.
Watch out: a one-sided answer is capped below the top band. Make sure the judgement actually weighs the policy against alternatives rather than just repeating the points.
A sets a legal floor on hourly pay, directly raising the earnings of the lowest-paid workers so they can afford more necessities. The risk is that, if set above what some firms can afford, it may lead them to cut jobs or hours, which would harm the very workers it is meant to help.
No single policy is enough on its own. Direct transfers (benefits, the minimum wage) relieve poverty now, while growth, education and healthcare reduce it for the long run, so governments usually combine several.