ECON Short questions

Question 1: Explain the importance of human capital in contributing to economic development.

The quality of the working population, the human capital, is the result of knowledge, skills, education and training. The benefits of enhancing human resources (investment in human resources) go far beyond economic growth. A short list of positive effects resulting from investment in human capital would have both economic and social benefits:
economic benefits would be higher productivity in the economy; increased labour mobility as more people would be attractive on the job market; more dynamism as a result of entrepreneurial spirit; and better use of finite resources
social benefits include better health and longer lives, greater participation and democratisation in local and municipal issues; better opportunities for women in choosing their own lives; and thee ability to partake in a wider range of cultural offerings

Quantity: Increases in the population can increase the number of young people entering the labour force and these increases in the supply of labour can increase economic growth. Increases in the population can also lead to an increase in market demand thus stimulating production. However, if the population grows at a faster rate than the level of GDP, the GDP per capita will fall.

Quality: Improving the skills of the work force is seen as being a key factor in promoting economic growth. Many LDCs have made enormous efforts to provide universal primary education. As more and more capital is used, labour has to be better trained in the skills to use the capital, such as servicing tractors and water pumps, running hotels and installing electricity. It should always be remembered that education spending involves an opportunity cost in terms of current consumption and thus it is often referred to as investment spending on human capital.

Question 2: Explain the difference between economic growth and economic development.

Many developing nations have managed to achieve high rates of economic growth, yet failed to experience any positive change in standards of living for the majority of their people. Thus, the definition of economic development had to be changed.

Economic growth is where there is an increase in the productive potential of the economy and is best measured by the increase in a country’s real level of output over a period of time, i.e. the increase in real Gross Domestic Product (real means adjusted for inflation).

Economic development, on the other hand, is a process where there is improvement in the lives of all people in the country. This involves not only living standards, such as greater availability of goods and services (and also the ability to purchase them) but also the promotion of attributes such as self-esteem, dignity and respect, and the enlarging of people’s freedom to choose and to take control of their own lives. While a country may grow richer therefore, through the growth of its real output, it does not necessarily mean that it will develop.

Question 3: Discuss the view that the achievement of higher economic growth rates should be the priority of developing economies.

It was believed that economic development occurred when there was a high level of industrialisation and economic growth; social factors, such as poverty and unemployment were of lesser importance. It was also believed that the material benefits of growth would trickle down from the better off to the rest of the population, causing development.

Question 4: Explain what is meant by sustainable development.

Sustainability is the ability of the environment to survive its use for economic activity. For economic growth to be sustainable, it must have a neutral effect on resources. Any resources used must be renewable and there must be no lasting impact on the environment. It is important that development is sustainable to ensure that it can endure in the long-term and is not built on the exploitation of natural resources that may run out in the future.

Question 5: Explain how extending property rights and land ownership can help bring about more sustainable development.

Extending property rights means extending ownership of resources to allow people to protect the environment and other resources more effectively..

Extending property rights protection to the poor is one of the most important poverty reduction strategies a nation can implement. Securing property rights to land, the largest asset for most societies, is vital to their economic freedom.The World Bank concludes that increasing land rights is ‘the key to reducing poverty’ citing that land rights greatly increase poor people’s wealth, in some cases doubling it. (Wikipedia)

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Some nations grant ownership of what is above and below the land when a individual owns a piece of land. By doing this, the owners can ask for a subsidy or payment when resources such as coal or other minerals are found on their land. The state has to ask the owner to do anything. This allows for more development compared to other countries that only grant the subsoil to be owned. This means that the owner is allowed to make use of the land itself to build and farm, but decisions of anything below that such as subways, sewers, and minerals are done by the state. When individuals have the rights and responsibility to make decisions about the land, they can benefit more.

Question 6: Discuss the view that economic growth will inevitably conflict with sustainable development.
Inequality of income — growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. In developing economies, income distribution is frequently unequal and many of the benefits of growth may go to the better-off in society and flow overseas in the form of increased profit for multinational corporations.
Pollution (and other negative externalities) — the drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution and resource degradation. This may be water or air pollution, but growth also creates significantly increased noise pollution. Deforestation and environmental degradation are likely to result from growth. This is particularly true in developing countries as they tend to have little legal protection of the environment.
Loss of non-renewable resources – the more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last.
Loss of land — increased output puts further pressure on the available land. This may gradually erode the available countryside. In many developing economies there will also be additional problems resulting from the movement of people from country to urban areas.
Lifestyle changes — the push for growth has in many areas put a great deal of pressure on individuals. This may have costs in terms of family and community life in many economies.