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Midterm

EC207 Study Guide - Midterm Guide: Subsistence Economy, Development Studies, Capital Accumulation


Department
Economics
Course Code
EC207
Professor
Shadab Qaiser
Study Guide
Midterm

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Kevin Bialczak Ec207 Midterm 1
EC207 CH 1 Notes Introducing Economic Development: A global Perspective
1.1 How the Other Half Live
2/5’s of the population lives on $2 per day
Absolute poverty:
o A situation of being unable to meet the minimum levels of income,
food, clothing, health care, shelter, and other essentials
Subsistence economy:
o An economy in which production is mainly for personal consumption
and the standard of living yields little more than basic necessities of
life food, shelter and clothing
Development:
o The process of improving the quality of all human lives and
capabilities by raising peoples levels of living, self esteem, and
freedom
Developing countries:
o Countries of asia, Africa, the middle east, latin America, eastern
Europe, and the former soviet union that are presently characterized
by low levels of living and other development deficits
1.2 Economics and Development studies
The nature of development economics:
Traditional economics is concerned primarily with the efficient, least-cost
allocation of scarce productive resources and with the optimal growth of
these resources over time so as to produce an ever-expanding range of goods
and services
Traditional neoclassical econ failed to address challenges faced by
development: static issues of market efficiency
Political economy: goes beyond traditional economics to study, among other
things
o The attempt to mere economic analysis with practical politics
o Concerned with the relationship between politics and economics
Development economics: has a greater scope, in addition to traditional
economics, it also deals with the economic, social, political and institutional
mechanisms, both public and privte to bring large scale improvements
Economic Development:
o Means bringing change to the life of those people from low level to
high levels of development
Development economics:
o Field of study devoted to understanding the economic experience of
developing countries
What are developing countries?
o Under developed economies, poor countries, third wolrd countries

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Kevin Bialczak Ec207 Midterm 1
o Low income, low standard of living, high income ineqaulitym high
poverty rates,low productivity,high population
What are the issues of poverty?
o Poverty: lack of income, hunger,lack of shelter, lack of representation,
lack of freedom
o Income poverty: when you do not have enough to feed yourself
o Asset poverty: when you do not have access to education, health,
homeownership
Why study development economics?
o Migration and brain drain( The emigration of highly educated and
skilled professionals and technicians from the developing countries to
the developed world)
o Growing interdependence between developed and developing
countries
Scope of development economics:
o Development economics arose as a response to the traditional
neoclassical economics
o Traditional neoclassical failed to address challenges faced by
development: static issues of market efficiency
o In contrast, development economics: dynamic issues to transform low
equilibrium to high equilibrium
Economic growth vs development
o Economic growth is the increase in the value of goods and services
produced in the country or it is the GDP per capita. It is the short run,
narrower concept
Growth is only change, and development is the structural
change
o Economic development is a long run and broader concept with
increase in per capita GDP in only one dimension. Education, health
care and employment and other aspects of human welfare are also a
focus of concern
Multidimensional
Economic development is the plan, growth is the strategy
Mission of development economics:
o To creat an environment for people of the developing nations to enjoy
long, healthy and creative lives
1.3 What do we mean by development
Traditional Economic measures
Development has traditionally meant achieving sustained rates of income per
capita to enable a nation to expand its output at a rate faster than the growth
rate of the population
o Seen as a purely economic pheneomenon

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Kevin Bialczak Ec207 Midterm 1
Income per capita = total gross national income of a country divided by
population
GNI = The total domestic and foreign output claimed by residents of a country.
It comprises gross domestic product (GDP) plus factor incomes accruing to
residents from abroad, less the income earned in the domestic economy
accruing to persons abroad
GDP = The total final output of goods and
services produced by the country’s economy, within the country’s
territory, by residents and nonresidents, regardless of its allocation
between domestic and foreign claims.
Emphasis is often on increased output, measured by GDP
Problems with per capita income as an indicator of economic development:
o Difficult to determine the market value of goods and services in
developing countries
o Health and life expectancy not included
o Does not take leisure into account
o Covers only one dimension of economic development; health and
literacy not considered
Problems with traditional measures of economic development
o Development strategies have usually focused on rapid
industrialization, often at the expense of agriculture and rural
development
The new view of economic development
With economic growth targets reached but with the levels of living of the
masses remaining unchanged a new view developed. Economic development
was redefined: The reduction or elimination of poverty, inequality, and
Stuvia.com - The unemployment within the context of a growing economy. -
>“redistribution form growth” became the new slogan.
Introduces multidimensional approach to development: not only income, but
also health and education
Amartya Sen’s “cabality” approach
New economic development was inspired by Nobel prize winner, amartya sen.
Amartya sen:
o Nobel prize winner of economics in 1998
o Leading thinker on the meaning of development
How does sen define development?
o Defines development as the “Capabilty function” from a poo to a non-
poor person
o Argues that poverty cannot be properly measured by income
o Poverty should be measured by what a person is, or can be, and does,
or can do
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