Model and Economic Theory - Assignment Example

? Article Analysis of the of the Contents Contents 2 Overview of the Issue 3 Model and Economic Theory3 Analysis 9 Conclusion 11 References 13 Overview of the Issue It was stated true by the famous economist Alfred Marshall that human wants are unlimited. In the study of economics, it has been stated that the most important economic problem of any country in the current world is the problem of ‘choice and scarcity.’ At this juncture, when the population level of mankind is growing at an increasing rate, the resources available for the production of various goods and services are limited. Thus, allocating resources efficiently is the major task of all the producers in the modern world. If the income level of an economy is not equal, then the resource allocation becomes inefficient. In this situation, the economy gets bifurcated into two groups: the ‘haves’ and the ‘have not’s. An increase in the strength of the latter is the underlying factor generating poverty in the economy. Poverty over the time has created and tends to create various problems like health hazards, low income, corruption and poor infrastructure in an economy. Referring to the article, the assignment will analyze the incidence of poverty and would also formulate ways to overcome such issues in the economy (Arnold, 2008). Model and Economic Theory It can be stated that it is the duty of an economy to achieve maximum returns from the given resources of production. Firstly, the resources should be allocated in production of those goods and services that help in boosting the economic standards of the individuals. It is also true that a nation should always try to improve its state of technology. If the technological expertise of a country improves, then the nation is able to generate a greater amount of goods and services with the given resources of production. Thus, the basic problems of economic choice are: What to Produce? How to Produce? For whom to produce? How much to produce? If a nation manages to address to these questions efficiently, then it would aim to eradicate the state of poverty and income inequality in its domestic territory (Srinivasan, 2001). The best economic model that helps to access the efficient resource allocation of a business firm is the model of Production Possibility Curve. The curve is based on the hypothetical analysis of an economy which engages in the production of two products A and B with the help of a given amount of resources and given state of technology. A Production Possibility Curve B (Source: Authors Creation) The above graph explains a production possibility curve. It shows the various combinations of two goods that can be produced (A and B) with the help of a given state of technology and a given amount of resources for the purpose of production. Since the amount of resources available in an economy is limited, it can be stated that for the production of extra units of product B, the country needs to sacrifice portions from the production of A. There is another way in which the economic well-being of a nation can be assessed. The gross domestic production (GDP) of a nation signifies the value of the final goods and services produced within the domestic territory of the country in a year. This also implies that a lower level of poverty in a country signifies a higher amount of GDP. The level of GDP in a nation helps to analyze the living standards in the country. Application of the Economic Theories in the Article The impending poverty level of a country takes form of a vicious circle. Low Education => Low Skills => Poor Paid Jobs => Low Income Level => Poor Standard of Living => Poverty => Low education (next generation). Figure 1: Production Possibility between Education and Food (Source: PPT) The above diagram shows the Production Possibility Curve for the choice of food production and education. It is always true that for the low income economies, the country has to concentrate more on allocating resources for food production than education as the producers needs to suffice the requirements of the growing population. Poverty generates low standard of living and low literacy level in the economy. It is true that nations that exhibit high scales of illiteracy are the ones with high growth in population. In such a situation, if the nation fails to improve its educational facilities, then the people of that country would not be able to earn more in the future, thereby, leading to a failure of the nation to eradicate poverty. The situation is just the opposite for the rich economies in the world. Rich nations with high economic development exhibit lower population. Thus the resources required by the producers for the production of food in such of economies are also less. Thus they can allocate a substantial amount of resources in the enhancement of education. This in turn helps these economies to become richer in the future (Ionascu, Meyer & Erstin, 2004). At this situation, the constant growth of the production possibilities of the economies is the only method that can help the nations in its aim to enhance its capabilities for the production of better educational opportunities and a greater amount of supplies. Figure 2: Economic Growth and Eradication of Poverty (Source: PPT) The above diagram shows the various types of production possibility curves that can be attained with the different types of growth modes. When the growth in the economy would take place, then the production possibility curve would shift rightward. Thus after observing the content of the article, it can be stated that the production possibility curve is in the context of poverty and economic development of a nation. A country in the contemporary world should always aim to reach a higher production possibility locus. It is also true that a nation must try to improve its level of GDP. A rise in the level of GDP would help economies eradicate the negativities that are faced due to acute forms of poverty. However, it should be considered that the level of GDP in any country today can only improve if the nation takes active steps and articulates its processes better in order to enhance its production possibilities (Smith, 2010). Analysis Poverty and income inequality is the problem faced by most of the economies in the contemporary world. Figure 3: Percentage of Poverty Levels (Source: Case Study) The above bar diagram shows that when the population of a nation increases and the level of the purchasing power parity of the country falls, the percentage of the individuals belonging to below the poverty line also increases. These poor people who exist at the below poverty line zone are the ones with poor access to education, health and other types of services. It is the duty of the public authority of a country to promote the welfare of this deprived class of the individuals. The Structural Adjustment Programs (induced by the International Monetary Fund in the developing economies) have forced the governments to cut down on their investments on poverty elevation and social welfare programs. These steps had been taken by the nations to facilitate the level of foreign direct investments and hence, increase the level of GDP. However, it has been found that a reduction in the social expenditures of the governments have increased the level of poverty in these nations. For example, there are many countries in the world, like Dubai, which have a high level of GDP but at the same time a high level of income inequality also exists in these countries (CIA, 2013). It has been stated in the millennium development goals that nations must give extreme priority to the improvement of its child and women health at the first instance. This is because the women health affects the health status of the children and that in turn depicts the strength of its future human capital of a country. It is true that if the level of human capital in a country is not good, then the economic capital of that economy can never be high. Poverty in the developing economies in the world, like Libya, has created severe impacts on the health of the children. The maternal mortality rate, crude death rate and child death rate are also high in such nations. The immunization capacities are also seen to be of poor strength. It has been truly stated by the World Health Organization that a mere escape for the hospital gate is not the sole indicator of a good health status. Better access to safe drinking water, better sanitation facilities and enhanced immunizations are also important indicators of the good health status of a nation (Sharp, Register & Grimes, 2013). By enhancing the production possibilities and by increasing the level of GDP, a country can help to reduce its level of poverty. However, it should be considered that the primary driving force for the eradication of poverty in a nation is the active initiatives taken by the government for the above-mentioned social indicators. Thus, the Structural Adjustment Program was a bane to the social parameters of emerging economies like India, Brazil and China (California State Assembly, 2010). In order to reduce the poverty in the existing economies, the governments must: Improve Food Supply (subsidizing it to the below poverty population). Enhance maternal and child health. Reduce corruption in the economy. Create sustainable development in the environment. Take foreign aid for social improvement. Create equitable income distribution. Conclusion Thus after analyzing the article in details and focusing on the underlying economic theory and model, it can be stated that poverty is the worst microbe that is to be blamed for the dampening of the progress of any economy. Besides, affecting the growth opportunities of the country adversely, poverty can also cause impairment to the existing productive resources of an economy. It is most desirable that a nation in the contemporary world adopts the mixed economic principles for the purpose of growth and development. The public authorities should take active measures to enhance the economic well-being of the nations. It is true that in the current crisis in the economic affairs worldwide, the level of poverty in the developing as well as the developed economies in the world have increased over time in the recent years. The governments of the respective economies should adopt active policies to overcome such problems (Shah, 2013). The major changes that are required to be adopted are: Improvement in the quality of labor. Augmenting the stock of capital. Improving the state of technology. Enhancing the efficiency in resource allocation. Trying to reduce the rate of growing population. References Arnold, R. A. (2008). Macroeconomics. Connecticut: Cengage Learning. California State Assembly. (2010). Emerging foreign economies. Retrieved from http://ajed.assembly.ca.gov/emergingeconomy. CIA, 2013. World Fact Book. Retrieved from http://www.globalissues.org/issue/2/causes-of-poverty. Ionascu, D., Meyer, K. E. & Erstin, S. (2004). Institutional distance and international business strategies in emerging economies. William Davidson Institute. Retrieved from http://deepblue.lib.umich.edu/bitstream/handle/2027.42/40114/wp728.pdf?sequence=3. Shah, A. (24 March 2013). Causes of Poverty. Global Issues. Retrieved from http://www.globalissues.org/issue/2/causes-of-poverty. Sharp, A., Register, C., & Grimes, P. (2013). Economics of Social Issues. Massachusetts: Boston: McGraw-Hill. Smith, F. (2010). Environmental Sustainability: Practical Global Applications. Massachusetts: CRC Press. Srinivasan, T. N. (2001). Progress, problems and prospects. Econ. Retrieved from http://www.econ.yale.edu/~srinivas/IntegratingIndia.pdf. Read More