Chapter 1

Question 1

absolute poverty

Answer 1

a situation of being UNABLE TO MEET MINIMUM LEVELS of life’s necessities: income, food, clothing, shelter, healthcare, etc.

Question 2

subsistence economy

Answer 2

PRODUCTION IS MAINLY FOR PERSONAL CONSUMPTION

Question 3

traditional economics

Answer 3

(as opposed to political economy, and then development economics)

emphasis on EFFICIENT RESOURSE ALLOCATION, PROFIT MAXIMIZATION, MARKET EFFICIENCY, AUTOMATIC PRICE ADJUSTMENTS (“INVISIBLE HAND”), “RATIONAL” & SELF-INTERESTED CONSUMERS

Adam Smith (Wealth of Nations, 1776)

Question 4

political economy

Answer 4

(as opposed to traditional and development economics)
RELATIONSHIP BETWEEN POLITICS AND ECONOMICS

esp. HOW POLITICAL INFLUENCE AFFECTS ECONOMIC DECISION-MAKING, and vice versa

how the politically powerful influence allocation of resources in an economy, and how the economically powerful influence political decisions

Question 5

development economics

Answer 5

(as opposed to traditional economics and political economy)

EFFICIENT RESOURCE ALLOCATION, but simultaneously always taking into consideration social, political, economic, and INSTITUTIONAL aspects of a given society in order to bring RAPID & LARGE-SCALE IMPROVEMENTS to people’s living conditions

=> emphasizes SOCIAL UTILITY OVER INDIVIDUAL UTILITY

=> includes LARGER ROLE FOR the GOVERNMENT and a degree of COORDINATED DECISION-MAKING

Question 6

Relationship between ECONOMIC GROWTH and DEVELOPMENT

Answer 6

Economic growth is a NECESSARY BUT INSUFFICIENT condition for development

Question 7

GNI

Answer 7

=> Gross National Income

=> that produced by the NATIONALS of a given country

Question 8

GDP

Answer 8

=> Gross Domestic Product

=> that produced within the GEOGRAPHICAL BOUNDARIES of a given country

Question 9

Capabilities Approach

Answer 9

=>created by Amartya Sen in the 1990s

=> What matters is not the commodities one has command over, but rather what you can do with the commodities you command

Question 10

nominal income

Answer 10

dollar value of income

Question 11

REAL income

Answer 11

nominal income adjusted for inflation

=> gives a MORE ACCURATE IDEA OF PURCHASING POWER within a given economy

Question 12

Sources of disparities between real incomes and actual possibilities

Answer 12

1. Personal heterogeneity (age, disability, gender, etc.)
2. Environmental impacts (infectious diseases in the tropics)
3. Variations in social climate (prevalence of crime and violence)
4. Feelings of relative deprivation (discourages societal participation)
5. distribution within families