Defining development
Definitions of key terms:
- Normal profit: the minimum reward required to keep a firm in its current line of production.
- Price maker: when firms have the power to decide the amount charged.
- Long run: the timescale in which economies of scale may work and over which all factors of production are variable.
- Allocative efficiency: the traditional objective of firms where MC = MR; profit maximisation.
- The demand curve: a graphical representation of the concept of how the number of consumers willing and able to purchase a good or service decreases as price increases.
- Homogeneous: goods and services that are identical in a given market.
- Short run: a period of time in which at least one factor of production is fixed.
- Variable cost: total required monetary payments for production less those which remain constant irrespective of output.
- Economies of scale: benefits from being big, for example bulk buying.
- Abnormal/supernormal profits: profits over and above the level of regard necessary to keep a firm in its present occupation.
- Price taker: where firms have no power over the price they charge.
- Marginal cost: required monetary payment for producing an extra unit of output.
- Barriers to entry: obstacles faced in entering a market.
- Product differentiation: major difference between perfect and monopolistic competition.
The Internet and perfect competition
Development can be measured using an economies GNP (GDP and net property incomes) per capita, the arithmetic average income of all individuals within the economy. Developed economies are those on a high income (which the World Bank defines as a GNP per capita of above ~$26,000) and developing economies those on mid to low incomes. This would include transitional economies, NICs and emerging economies.
| Income group | High income | Upper middle | Lower middle | Low |
|---|---|---|---|---|
| Examples of economies within this income group |
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The location of developed economies:
- Developed economies are located primarily in western Europe, the US, Japan and Australasia.
- Hong Kong is in a high income group whereas main land china is in the low income group.
- The GNP per capita of Greece, Spain and Portugal is less than half that of the UK. This is likely to be because these economies are on the edge of the EU.
- Turkey, which wants to join the EU is in the lower middle income band, and using income as a scale for development the Turkish economy is far behind other members of the EU, even those that have just recently joined.
Stages of development of an economy
As an economy industrialises the value of output produced increases dramatically leading to high economic growth. In developed economies the rate of growth is lower and more stable. The growth rate of an economy could therefore be used to measure the development of an economy. The general trend shown in the graph below can be seen in the history of economies now classified as developed.
These notes are from lessons on 18/06/2004 and 21/06/2004.
