ECONOMIC DEVELOPMENT  Using values for the slope and intercept, you

can write a LINEAR EQUATION that will enable

INTRODUCTION TO ECONOMICS- Lecture 1
you to calculate what the dependent variable
The Economic Perspective would be for a given level of independent
variable.
 It recognizes that scarcity requires choice and
all choices entail a cost. Economizing Problem
 It view people as rational decision makers who
 The economizing problem for both individuals
make choices based on their self-interests. and institutions arises from this continual
 It uses marginal analysis to assess how the struggle to decide how best to use limited
marginal costs of a decision compare with the productive resources to satisfy economic
marginal benefits. wants.
Economic Methodology  Economics is called the science of EFFICIENCY.

 Theoretical Economics is gathering and analysis Two characteristics of efficiency:

of relevant facts to derive economic principles. 1. Full-employment – all productive resources
 Policy Economics is the use of economic available to the economy are being used
principles to develop a course of action to solve 2. Full-production
economic problems
Full-production requires that two types of efficiency:
Economic Analysis
 Allocative efficiency which means resources are
Economic analysis is conducted at two levels, and might being devoted to the production of the goods
be positive or normative. and services society most highly valued.
 Macroeconomics – looks at the entire economy  Productive efficiency entails producing this
or its major aggregates or sectors, such as optimal product mix in the least costly way.
households, businesses, or government. Production Possibilities Curve/Production Possibilities
 Microeconomics– studies the economic Frontier
behavior of individuals, particular markets,
firms or industries.
 Positive Economics– focuses on facts and is
considered with WHAT IS, or the scientific
analysis of economic behavior.
 Normative Economics– suggests what ought to
be and answers policy questions based on value
judgments.
Graphs and Their Meanings
Graphs help illustrate and simplify the economic
theories and models.

 Economists usually, but not always place the

INDEPENDENT VARIABLE (income) on the
horizontal axis and the DEPENDENT VARIABLE
(consumption) on the vertical axis.
 Once the data points are plotted and a line
drawn to connect the plotted points, you can
determine whether there is a DIRECT or an
INVERSE relationship between variable.
 Information from data in graphs and tables can
be written in an equation. The work involves
determining the SLOPE and INTERCEPT from a
straight line in a graph or data in a table.
 Economic Systems
 An economic system is a system of production,
resource allocation, exchange, and distribution
of goods and services in a society or a given
geographic area.

Circular Flow Model

ECONOMIC DEVELOPMENT- LECTURE PPT 1

Development Economics as a subject
Pearson Report (1969) remarked a generation ago, ‘the
widening gap between the developed and the
developing countries has become the central problem
of our times.”
1. First, in the wake of the Great Depression of the
1930s, and the aftermath of war, there was
renewed interest among professional
economists in the growth and development
process and in the theory and practice of
planning.
2. Second, the poor countries themselves have
become increasingly aware of their own
backwardness, which has led to a natural desire
for more rapid economic progress.
3. Third, the absolute number of poor people are
considerably greater now than in the past, and
greater awareness has struck a humanitarian
chord in the world at large.
4. Fourth, there has been a growing recognition by
all concerned of the interdependence between
countries in the world economy. The Cold War
between the capitalist West and the communist
East led the major developed countries to show
a growing economic and political interest in
poor and ideologically uncommitted nations.

Economics and Development Studies

 The study of economic development is one of

the newest, most exciting and most challenging
branches of the broader disciplines of
economics and political economy.
 Development economics is not the same as the
traditional economics of advanced capitalist
nations (neoclassical economics), not it is
similar to the centralized socialist societies.
 This is economics of the underdeveloped
nations.
 This involves varying ideological orientations,
diverse cultural backgrounds, and very complex
yet similar economic problems that usually
demand new ideas and novel approaches.
 1979 Nobel Prize in economics:
W. Arthur Lewis – Princeton University
Theodore Schultz – University of Chicago
..on their pioneering studies of the development
process.
 1998 Nobel Prize in economics:
Amartya Sen

 2001 Nobel Prize in economics

Joseph Stiglitz  resolving
tribal or
..on their major contributions in development ethnic
economics conflicts,
 preserving
The Nature of Development Economics
religious and
Traditional Political Development cultural
traditions.
Economics Economy Economics
Family, clan,
Concerned with: Concerned with: Concerned with:
religious or tribal
-efficient, least- -social and -Economic, social,
considerations
cost-allocation of institutional political, and
may take
scarce productive processes institutional
precedence over
resources through which mechanisms,
private, self-
(Neoclassical) certain groups of both public and
interested utility
economic and private to bring
of profit-
-Advanced political elites rapid and large-
maximizing
capitalist world of influence the scale
calculations.
perfect markets allocation of improvements in
scarce productive the levels of
resources now living.
and in the future,  Development Economics to a greater extent
for their exclusive
than traditional neoclassical economics of even
benefit or of the
political economy, must be concerned with
larger population.
Assumes Concerned with: Greater in scope. economic, cultural, and political requirements
economic Relationship Commodity and for effecting rapid structural and institutional
“rationality” and between politics resource markets transformations of entire societies in a manner
a purely and economics, are highly that will most efficiently bring the fruits of
materialistic, emphasizing on imperfect, economic progress to the broadest segment of
individualistic, the role of power consumers and their populations.
self-interested in economic producers have  Development Economics focus on mechanisms
orientation decision making limited that keep families, regions, and even entire
toward economic information; nations in poverty traps, and on most effective
decision making major structural
strategies for breaking out of these traps.
changes in both
the society and
the economy;
multiple
equilibria rather
than a single
equilibrium is
common;
disequilbrium
situations prevail.
In many cases,
economic
calculations are
dominated by
political and A larger government role and some degree of
social priorities, coordinated economic decision making directed toward
such as: transforming the economy are usually viewed as
 unifying the essential components of development economics.
nation
 replacing The Important Role of Values in Development
foreign Economics
advisers with
local decision  As a social science, it is necessary to recognize
makers from the outset that ethical or normative value
 premises about what is or is not desirable are  Development is used to describe the process of
central features of this economic discipline in economic and social transformation within
general and of development economics in countries.
particular.
 The very concepts of economic development Goulet’s Three Core Components of Development
and modernization represent implicit as well as 1. Life –sustenance (ability to meet the basic
explicit value premises about desirable goals for needs)
achieving what Mahatma Gandhi once called
the “realization of the human potential.” Life-sustenance is concerned with the provision of basic
needs. The basic needs approach to development was
Economies as Social Systems: The Need to Go Beyond initiated by the Work Bank in the 1970s.
Simple Economics
No country may be regarded as fully developed if it
▪ Validity of economic analysis and correctness of cannot provide its people with such basic needs as
economic prescriptions should be evaluated in housing, clothing, food and minimal education.
the light of the underlying assumptions or value
premises. No country may be regarded as fully developed if it
cannot provide its people with such basic needs as
▪ In case of serious value conflicts and housing, clothing, food and minimal education.
disagreement among decision makers, the
possibility of consensus about desirable goals or A major objective of development must be to raise
appropriate policies is considerably diminished. people from primary poverty and to provide basic needs
simultaneously.
What is DEVELOPMENT?
2. Self-esteem (to be a person)
▪ Traditionally meant the capacity of a national
economy, whose initial economic condition has Self-esteem is concerned with the feeling of self-respect
been more or less static for a long time, to and independence. No country can be regarded as fully
generate and sustain an annual increase in its developed if it is exploited by others and does not have
GNI at rates of 5% to 7% or more. the power and influence to conduct relations on equal
terms.
▪ Measure of Growth ------income per capita
Developing countries seek development for self-
Industrialization (oftentimes at the expense of esteem; to eradicate the feeling of dominance and
agriculture and rural development dependence that is associated with inferior economic
▪ “trickle down effect” status.

The New Economic View of Development 3. Freedom (to be able to choose)

REDISTRIBUTION FROM GROWTH Freedom refers to freedom from the three evils of
‘want, ignorance, and squalor’ so that people are more
 “The question to ask about how a country’s able to determine their own destiny. No person is free
development are therefore: What has been if they cannot choose; if they are imprisoned by living
happening to poverty? What has been on the margin of subsistence with no education and no
happening to unemployment? What has been skills.
happening to inequality? If all three of these
The advantage of materials development is that it
have declined from high levels, then beyond
expands the range of human choice open to individuals
doubt this has been a period of development
and societies at large.
for the country concerned.
 If one or two or these central problems have  All three of these core components are
been growing worse, especially if all three have, interrelated. Lack of self-esteem and freedom
it would be strange to call the result result from low levels of life-sustenance, and
“development” even if per capita income both lack of self-esteem and economic
doubled.” (Dudley Seers) imprisonment become links in a circular, self-
perpetuating chain of poverty by producing a
Development implies CHANGE.
sense of fatalism and acceptance of the
 established order - the ‘accommodation to
poverty’ as Galbraith (1980) once called it.
MACROECONOMICS
The Economics Framework

The main goal of macroeconomics is to gain a better

understanding of the causes of, and remedies for,
1. Macroeconomics is the study of the economy as UNEMPLOYMENT and INFLATION, as well as the factors
a whole. that affect ECONOMIC GROWTH (unemployment,
2. Major Macroeconomic concerns: inflation, and economic growth).

 How to increase growth Macroeconomic Issues:

 How to reduce inflation
 How to reduce unemployment  Unemployment ECONOMIC
 How to increase investment  Inflation
 Why some countries grow faster than others INDICATORS
 Economic Growth
The Economic Problem
NATIONAL INCOME ACCOUNTING
Gross National Product

John Maynard Keynes (1883-1946)

 John Maynard Keynes, 1st Baron Keynes, CB,
FBA (/ˈkeɪnz/ KAYNZ; 5 June 1883 – 21 April
1946), was a British economist whose ideas
have fundamentally affected the theory and
practice of modern macroeconomics and
informed the economic policies of
governments.
Other Methods in Calculating GND and GDP
 The Agribusiness Manufacturing
1. Hog-raising 1. Furniture Making
2. Poultry Raising 2. Drinking water
3. Cattle Raising business
4. Goat Raising 3. Soap Making
5. Rice Farming Business
6. Vegetable 4. Commercial
Farming Bread Making
7. Fish Pens
8. Corn Farming

Small and Medium Enterprises (SMEs)