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Development Economics Questions

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#1
tndunganh

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I have a few questions that I don't know how to answer regarding my upcoming test about Development Economics:

Indicate the importance of price in allocating scarce resources

Evaluate possible consequences of implementing maximium and minimum price controls

Can you guys please help me to answer these 2 questions?
Thank you very much! :P

#2
Matthew Sinclair

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That sounds more like an introduction to economics question and a micro question :P ?

Price and scarce resources:

In a free market, the price mechanism (interaction of supply and demand) set the price. This price should be the equilibrium/market-clearing price for the good/service. The free market price I think would give a good allocation of scare resources depending on supply and demand. However, price alone may not be the BEST way to allocate scarce resources. Therefore, government's might intervene in the market to change the resource allocation to make it better (subsidies etc). This is because the free market may cause some goods to be under-provided (merit goods) and others over-provided (demerit goods) and public goods won't be provide at all as they have the characteristics of non-rivalry and non-diminish-ability or something like that. Price as a means of allocating scarce resources is quite important therefore in free markets, and mixed market structures. (most economies are mixed free market economies) so thus it's a very important and relevant means of allocating goods, but the apportionment of the good may not be optimal.

Maximum prices (ie, price ceiling, like on rent control) - cause an excess demand. Smaller quantity supplied and sold. Under-allocation of resources to the good and allocative inefficiency. Non-price rationing (intervention in the market). Could cause underground or informal/black markets.

Minimum prices (ie, price floor, like on agricultural products/wages) - cause an excess supply (surpluses). Smaller quantity demanded and produced. Firm inefficiency as they might be less inclined to cut costs and become more competitive. Over-allocation of resources to the production of the good (lacking efficiency - not good!!). Illegal sales of excess stock at a price below the floor.


p.s: with evaluation questions, make sure that you do some of these:

benefits/disadvantages
effects on different stakeholders (producers, consumers, gov't, foreign sector, financial sector etc)
Prioritisation of arguments
Short-run/long-run

Make sure that you come to a conclusion at the end based on the points you've made. It needs to be a reasoned conclusion! =)

Edited by Matthew Sinclair, Nov 09, 2010 - 09:46.

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#3
tndunganh

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That sounds more like an introduction to economics question and a micro question :P ?

Price and scarce resources:

In a free market, the price mechanism (interaction of supply and demand) set the price. This price should be the equilibrium/market-clearing price for the good/service. The free market price I think would give a good allocation of scare resources depending on supply and demand. However, price alone may not be the BEST way to allocate scarce resources. Therefore, government's might intervene in the market to change the resource allocation to make it better (subsidies etc). This is because the free market may cause some goods to be under-provided (merit goods) and others over-provided (demerit goods) and public goods won't be provide at all as they have the characteristics of non-rivalry and non-diminish-ability or something like that. Price as a means of allocating scarce resources is quite important therefore in free markets, and mixed market structures. (most economies are mixed free market economies) so thus it's a very important and relevant means of allocating goods, but the apportionment of the good may not be optimal.

Maximum prices (ie, price ceiling, like on rent control) - cause an excess demand. Smaller quantity supplied and sold. Under-allocation of resources to the good and allocative inefficiency. Non-price rationing (intervention in the market). Could cause underground or informal/black markets.

Minimum prices (ie, price floor, like on agricultural products/wages) - cause an excess supply (surpluses). Smaller quantity demanded and produced. Firm inefficiency as they might be less inclined to cut costs and become more competitive. Over-allocation of resources to the production of the good (lacking efficiency - not good!!). Illegal sales of excess stock at a price below the floor.


p.s: with evaluation questions, make sure that you do some of these:

benefits/disadvantages
effects on different stakeholders (producers, consumers, gov't, foreign sector, financial sector etc)
Prioritisation of arguments
Short-run/long-run

Make sure that you come to a conclusion at the end based on the points you've made. It needs to be a reasoned conclusion! =)

Hey thank you very much! What else do I have to learn for development economics?

#4
Matthew Sinclair

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Try and have a look at your syllabus :P There's too much for me to write.

The two questions you asked weren't really even development questions in my opinion. Maybe I'm in the old syllabus? (did it change recently? i dunno haha)

Bascially it's things to do with Economic Growth, Economic Development. Barriers to these things and ways to promote/encourage them. Also there's a rather large emphasis on FDI (Foreign Direct Investment) and MNCs (Multi National Corporations). Development Economics is section 5 of the syllabus and basically combines all the others and adds some more. Some people don't bother studying it, which is A HUGE MISTAKE! As it will always be on exams and it's quite easy if you're prepared :) Have you not got a textbook? If not, have a look on this site/the internet/your library for textbooks to tell you what you need to know

#5
Desy Glau

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I have a few questions that I don't know how to answer regarding my upcoming test about Development Economics:


they are microeconomics questions, I just finished studying chapter 2 and can answer them already, which means they are microecons questions. and these are SL questions.

haha anyways,

Explain the importance of price in allocating scarce resources.



define scarce resources

define demand & supply, state the laws of demand & supply

draw the demand&supply curves -- explain a bit about equilibrium price

price is determined by supply and demand

price acts as a signal to producers and consumers

price acts as an incentive to producers to reallocate resources


Evaluate the possible consequences of implementing maximum and
minimum price controls.


define maximum price -- set by the govt, below equilibrium price, to protect poor consumers

define minimum price -- set by the govt, above equilibrium price, to protect poor producers (farmers, maids)

draw 2 diagrams -- one about maximum price, one about minimum price

discussion of price controls as forms of government intervention

discussion of the problems associated with the shortages that develop due to the
setting of maximum prices:
• queues
• waiting lists
• rationing
• black markets
and their solutions -- govt intervention again -- subsidise product, release buffer stocks, produce the good by themselves, increase supply of substitute products (if possible) so consumers will deviate from consuming this product

discussion of the problems associated with the surpluses that develop due to the
setting of minimum prices:
• producers can ignore price controls and cut their prices
• firms can become productively inefficient
• firms are discouraged from producing alternative goods which can be produced
more efficiently but which may have a lower free-market price.
• signaling role of prices is distorted and there is a misallocation of resources.
• discussion of who "suffers" from price controls
and their solutions -- govt intervention again -- bulk buying (to be buffer stocks, so they can be released when there is a shortage haha), tax the product (although not rational to do this)



#6
tndunganh

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Try and have a look at your syllabus :P There's too much for me to write.

The two questions you asked weren't really even development questions in my opinion. Maybe I'm in the old syllabus? (did it change recently? i dunno haha)

Bascially it's things to do with Economic Growth, Economic Development. Barriers to these things and ways to promote/encourage them. Also there's a rather large emphasis on FDI (Foreign Direct Investment) and MNCs (Multi National Corporations). Development Economics is section 5 of the syllabus and basically combines all the others and adds some more. Some people don't bother studying it, which is A HUGE MISTAKE! As it will always be on exams and it's quite easy if you're prepared 8-) Have you not got a textbook? If not, have a look on this site/the internet/your library for textbooks to tell you what you need to know


Hey thank you sooo much 8-) That was very informative :):D

Hey I have more questions 8-)

State 2 barriers of development and evaluate strategies to overcome these problems

Draw a digram to show how an imporvement in literacy rate would lead to economic growth

#7
Matthew Sinclair

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I'm sure if you use your textbook/studyguide/google you should be able to come up with a few dot points at least. Making us do all of it for you is not going to help you come your exams. Ask specific questions, not just the exam question.

For the second one, just draw a PPC and say that human labour (one of the factors of production) has been increased, therefore the PPC moves out etc, potential growth and actual growth etc.

Your textbook is there to help you, so use it! and ask specific questions here about what you don't get etc. Use my above 4-5 points for evaluation (the ones I already posted).

IB = Individual Brain.



Also, you may get in trouble from the administrators/moderators of this site for being a leech so make sure you're at least contributing back to the IBSurvival community with either files or good answers :P

Edited by Matthew Sinclair, Nov 10, 2010 - 07:07.


#8
Desy Glau

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1. You have asked 2x2 questions which are likely to be past paper questions, which means they can be answered by referring to your textbook, notes, internet and asking your teacher.

2. We are all people who are voluntarily willing to help IB students to survive here. In other words, we do not get paid.

3. I just did your first two questions as a topic test and got 23/25. I outlined what to say when you want to answer them. You replied to this thread and not even show gratefulness to me in any form (eg. rep, saying it). Well this is not a really big deal but it pisses me off. I answered after Matthew answered, anyway.

4. Now you posted 2 other questions without showing any effort. You did not give any comment about the questions and you did not specify what you are asking (which means you expected us to fully answer the questions for you).


Don't you have a textbook and notes? Is your teacher not willing nor able to help/guide you to answer these?

Thank you very much, Matthew, for pointing those out.

At least if you have tried to answer them but not understand, we could explain to you and help you to understand. You did not put in any effort but you wanted us to put a lot of effort in to answer these questions.

#9
tndunganh

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Hey thanks a lot guys :P I really appreciate it :) Yeah I know I'm not asking you guys to do my work for me it's just there are some questions that I don't understand how to get the right answer :D My test is tomorrow so I created another topic just to get attention so I'm sorry and it wont happen again :) Thank you guys so much thou :)