Key terms
- Absolute poverty
- Absolute poverty is having an income below the level a person needs for a basic standard of living, such as food, clothing and shelter.
- Relative poverty
- Relative poverty is having an income below a set percentage of the median income in one's own country, so the line moves as incomes move.
An absolute line is fixed by the cost of the basics
An absolute poverty line is the income a household needs to buy a basic standard of living. One way to set it is to price a nutritionally adequate diet for a family of a given size and scale that up to cover other needs. The line is then adjusted over time only to keep the same buying power, so it moves with prices and not with the living standards of everybody else.