In-depth summary covering the knowledge required under the OCR A level economics specification. Includes a number of analysis and evaluative points to assist students with essay-based questions.
Development:
Development: a process by which real per capita incomes are increased and the inhabitants of a
country are able to benefit from improved living conditions. Development requires the alleviation of
poverty and enhanced standards of education, health, nutrition and other essentials of life.
Structure of the economy:
Primary sector: the sector in which production uses natural resources, including the extraction of raw
materials and the growing of crops e.g. agriculture, mineral / oil extraction, forestry etc
Secondary sector: the sector involving the production of manufactured goods - raw materials are
processed or transformed into goods.
Tertiary sector: the sector involving production of services - for example transport, communication,
financial services etc
Quaternary sector: which is production based on information technology and information products -
hi-tech industry, scientific research
● Many less developed countries (LDCs) have an economic structure that is strongly based
towards the primary sector (particularly agriculture)
● Labour productivity tends to be lower in agriculture than other sectors and there is less scope
for exploiting increasing returns to scale than in manufacturing activity
● Primary producers tend to face difficulties in international markets due to volatility in
commodity prices and the long-run tendence for agricultural prices to fall relative to prices of
manufactured goods.
Macroeconomic Measures:
Issues with macroeconomic measures:
● Exchange rate problems: economists often use the US dollar to classify countries so they can
compare average incomes using a common unit of measurement however purchasing power
of income varies between countries. GNI is calculated in terms of local currencies and then
converted into dollars using exchange rates - however his will not provide information about
the relative purchasing power of incomes.
● Informal economic activity: common in many low income countries which may not be captured
by measures like GNI which are based on monetary transactions - e.g. subsistence
agriculture which remains important in areas such as sub-saharan Africa.
● Income distribution: GNI, GDP etc are all average measures and so does not reveal
information about how income is distributed among groups
● Single measures : such as GNI or GDP may not be reasonable indicators of a country’s
standard of living as provides a very narrow view - does not account for many other factors
such as education, healthcare, environment etc
● Gender inequalities : the situation of women in many countries has been a concern and is not
accounted for in many measures -women tend to receive less education, experience greater
health risks and receive lower incomes - e.g. in Pakistan female HDI is 25% lower than for
males
, HDI (Human Development Index): a composite indicator of the level of a country’s development
varying between 0 (low) and 1 (high)- three components are measures based on the key aspects of
human development (resources, knowledge of how to use resources and a reasonable life span to
use those resources)
● GNI per capita in PPP$
● Indicators of education - mean years of schooling and expected years of schooling
● Life expectancy
Pros Cons
GDP Useful to evaluate standards -Only a single measure of development - development
GNI of living - a good indicator of comprises of far more than just higher incomes
poverty levels in the -Only accounts for quantity of output when production
economy may have had significant environmental costs / caused
Only accounts for the other externalities which actually worsen living
income generated by a standards
country’s factors of -No information on the distribution of income - income
production regardless of increases may only benefit the elite - gov may be
where they are located so corrupt
doesn’t include MNC profits -Exchange rate problems
which are often repatriated -Informal economy not accounted
back to home countries and -GDP doesn’t take into account remittance incomes
impose poor conditions and (income earned abroad by domestic worker sent back to
low wages on workers which family members in the home country - growing due to
increases GDP without any globalisation) and may falsely include profits made by
improvement in living MNCs
standards -Maps economic growth but may not translate into
development outcomes improving due to corrupt
governance, one sector dominance etc
HDI -A compound measure -Does not account for income inequality within a country
which is more and the impact this has on development - however HDI
encompassing and acts as a can be adjusted for income inequality by using the
broader measure of inequality adjusted HDI (data relating to inequality in the
development than any three components of HDI are used to adjust the HDI to
single indicator try and estimate the extent to which human
-Focuses on development development is lower because of inequalities)
outcomes - whether -All three factors are weighted equally in the HDI which
economic growth has can be argued to be arbitrary especially when there is a
actually improved education certain area which is lacking more than another - low
etc ratings in one factor may be offset by high ratings in
-Reflects the differing another
priorities governments have -Still a narrow outlook in the areas of development
in development considered - doesn’t include freedom, gender equality,
environment ec - however can be argued that they
consider the main pillars of development when these
other aspects are difficult to measure
Barriers to development:
● Lack of education: due to indebted governments who are unable to provide free universal
education which is accessible to all sections of society. There may be income inequality
where rural households with lower incomes than urban households cannot afford or access
education due to lack of transportation. There may be a culture of child labour where young
children are expected to be income earners for the family - if the family does not value
education future generations may be trapped in a long term poverty cycle.
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