Absolute Poverty and Relative Poverty

Economists commonly distinguish between two broad concepts of poverty — absolute poverty and relative poverty. This distinction is a frequently asked short-answer topic in Gujarat board economics papers.

Absolute poverty refers to a fixed, minimum standard of living — usually expressed as a minimum level of income or consumption expenditure needed to meet basic survival needs (a minimum calorie intake, a set of essential non-food items). A person is absolutely poor if their income/consumption falls below this fixed minimum, regardless of how well-off others around them are. India's official poverty estimates (the poverty line, discussed in the next section) are based on the absolute concept.

Relative poverty, on the other hand, compares a person's or household's standard of living with the standard of living of others in the same society. A household may be considered relatively poor if its income is significantly below the average or median income of the country, even if its absolute consumption is above bare survival level. Relative poverty is more commonly used in developed countries, where absolute deprivation is rare but income inequality is still a concern.