What is Sustainable Development

Sustainable Development is development that meets the needs of the present without compromising the ability of future generation to meet their own needs. Sustainable Development has continued to evolve as that of protecting the world’s resources while it’s true goal is to control the world’s resources. So environmentally sustainable economic growth refers to economic development that meets the needs of all without leaving future generation with fewer natural resources than those we enjoy today.

The term Sustainable Development first came to prominence in the world conservation strategy in 1980. It achieved a new status with the publication of two significant reports by Brutland on North and South in 1985.Our Common Future and has gained even greater attention since the United Nation Conference on Environment and Development (UNCED) held in Rio de Janerio in June 1992. “Sustainable Development means that meets the needs of the present without compromising the ability of future generation to meet their own needs”. The aim of sustainable development is to balance our economic, environmental and social needs allowing prosperity for now and future generation. Sustainable development consists of a long-term, integrated approach to developing and achieving a healthy community by jointly addressing economics, environmental and social issues, whilst avoiding the over consumption of key natural resources.

What is the economic perspective on sustainable development?

 The economic perspective on sustainable development focuses on balancing economic growth with environmental preservation and social equity. 

From an economic standpoint, sustainable development is about ensuring that the growth and development of the economy does not compromise the ability of future generations to meet their own needs. This involves a careful balancing act between economic growth, environmental preservation, and social equity. Economists argue that these three pillars of sustainable development are interdependent and mutually reinforcing, and that the long-term health of the economy depends on maintaining this balance. 

Economic growth is a key component of sustainable development. It is necessary for improving living standards, reducing poverty, and providing the resources needed for environmental protection. However, unchecked economic growth can lead to environmental degradation and social inequality. Therefore, economists advocate for 'green growth' or 'sustainable growth', which involves decoupling economic growth from environmental degradation and promoting technologies and practices that are environmentally friendly. 

Environmental preservation is another important aspect of sustainable development from an economic perspective. Economists recognise that the environment provides essential resources and services that underpin the economy, such as clean air and water, fertile soil, and a stable climate. Therefore, they argue that protecting the environment is not just a moral obligation, but also an economic necessity. This involves implementing policies and practices that reduce pollution, conserve natural resources, and promote biodiversity. 

Social equity is the third pillar of sustainable development. Economists argue that economic growth should be inclusive and benefit all members of society. This involves addressing income inequality, promoting social inclusion, and ensuring access to basic services such as education and healthcare. Economists also recognise that social equity is necessary for maintaining social stability, which is a prerequisite for economic growth. 

For sustainable development to be achieved, policies in these three areas need to work together and support each other. For example, research shows that improving social wellbeing can help eliminate resource scarcity and meet everyone's economic needs. However, as people become wealthier, they may consume more products and services that have a negative environmental impact. 

In conclusion, the economic perspective on sustainable development is about finding a balance between economic growth, environmental preservation, and social equity. It recognises that these three pillars are interdependent and mutually reinforcing, and that the long-term health of the economy depends on maintaining this balance.

Economy and Coronavirus

COVID-Puzzle, COVID-Awareness, COVID-19

COVID – 19 has not only affected the asset prices and stock market but real lives and day to day activity. Stock markets have crashed earlier too but this time the situation is very different as there is no manipulation or speculations but a global pandemic.

We can be in a position of recession in coming years. There is no production of goods, there is a forced stop for all production activity, not only within the country but supply of goods from outside the country too.

Everything is so interdependent in the economy. Like if a restaurant is ordered to shut down there will be no demand of green grocer items, unutilized manpower. The owner has to pay their fixed expenses (rent, power, salary etc) but no income in the hands of green grocer and manforce.There is no revenue but expenditure.

A consumer now is spending on essential commodities and there will be a huge fall in the demand of non-essential commodities in the market(affecting its production and revenue generation to economy).

Due to this drop of demand and supply in the economy there is less movement of money in the economy. This lack of economic activity and thereby less money in the economy is going to hit everyone.This story plays across the sectors, across the economy and across the world.The coming days are crucial in terms of dealing with this pandemic and its economic impact.

Both the Monetary and Fiscal policy support will be required to face the tough situation.

COVID-Puzzle, COVID-Awareness, COVID-19

Coronavirus – At a glance

COVID-Puzzle ,  COVID-Awareness ,  Economy-COVID

The World Health Organization (WHO) has declared the new corona virus outbreak which originated in Wuhan (China) as a global pandemic. This virus has spread in almost 210 counties of the world wide. The worst affected countries are China, Italy, USA, Spain and many more in the list.

Symptoms ranged from people with mild symptoms to people being severely ill and dying. It include fever, cough, shortness of breath i.e. flu like symptoms.

The incubation period of COVID-19 is between 1 and 14 days. In some patients particularly elders and other with some chronic health conditions, symptoms can develop into pneumonia, chest pain and shortness of breath which leads to respiratory or multi organ failure.

If we study the mortality rate about 2% reported cases the virus is fatal in which ratio of older people are more and relatively less cases are seen in children.

COVID – 19 spread from person to person in close proximity. Droplets of bodily fluids like saliva or mucus from an infected person are dispersed in the air or on surfaces while coughing or sneezing. And if other people come in direct contact or touch the infected surface and then their face, the virus gets transmitted to that person too.

So important precautions includes :

1. Wash your hands frequently with soap and water or using alcohol based hand rub as it kills the virus that may be on our hands.

2. Most and very important maintain Social distance, maintain at least 1metre distance between yourself and anyone who is coughing or sneezing.

3. Avoid touching eyes, nose, mouth, as virus can enter your body and make you sick.

4. Practice respiratory hygiene, this means covering your mouth and nose with your bent elbow or tissue paper when you cough or sneeze and then dispose the used tissue immediately.

5. If you have fever, cough and difficulty in breathing seek medical advice; do not take any medicine on your own.

COVIDPuzzle, COVID-Awareness, Economy-COVID

Globalization – As a boon

Many thinkers believe that globalization is a threat as it reduces the role of the state in many countries. Some counter argue that it is an opportunity as it opens up markets to compete in and capture.

Let’s see what good globalization has done for us :

Creating employment opportunities : As globalization has brought every country to a competitive world, so it has led to the generation of numerous employment opportunities. Many companies are moving towards developing countries for labour force. Also as migration of people is now easier it has also created lots of jobs opportunities for those countries who has labour force shortages (generally developed countries). Also if a country is experiencing high unemployment there are increased opportunities to look for work elsewhere. This too reduces geographical inequality.However, this issue (brain drain) is also quite controversial.

Spread of Education : The most important benefit is the spread of education. There are so many educational institution around the world, one can move out from his country to another country for more better opportunities, integrating with different cultures, meeting and learning from various people through medium of education.

Better quality product at cheaper price : due to increase in international trade, intense competition in the market is seen. Lots of products with plenty of option, having different price range to choose for consumers. To stand out in competition, product quality has been enhanced so as to retain the consumers, low or poor quality products adversely affect consumers satisfaction.

Since there are lot of choices available for consumers, the producer can sustain only when the product is competitively priced. Anytime consumer can switch to another product. Therefore, affordable pricing has benefited the consumer in great way.

Increased Capital Flow : Globalization has successfully attracted a lot of firms investing in the developing countries by setting up industrial unit outside their home country leading to huge Foreign Direct Investment (FDI), which helps in promoting economic growth in the host country. Also due to electronic transfer, transferring money through banks is just the  click of a button, making work really comfortable for investors.

Improved Infrastructure : This is only due to globalization that many infrastructure facilities relating to transportation is so easy. Connectivity to any part of the world is no more a problem, with various mode of transportation available one can easily deliver the products to customers located to any part of the world. Also circulation of information is no longer a difficult task, it just requires few seconds, due to advancement in communication technology. The internet service has significantly affected the global economy, providing directing access to information and products.

Economic Growth : As due to wide growth of market, we see an increase in demand for various products. As per the demand, producers are venturing into the markets that are on high demand, leading to rise in GDP of the country thereby economic growth. If we see the statistics the GDP of the developing countries has increased twice as much as before.

International Trade : The horizon of international trade has widened, it is not just sale and purchase of commodities. With the process of outsourcing international trade has broadened his horizon. Know the focus can be made on a particular segment of business and certain services can be outsourced. Also flexible EXIM (Export Import Policy) policies, with minimal restriction is proving beneficial to businesses.

Specialized production : Production now days is increasingly specialized. Globalization enables goods to be produced in different parts of the world. For say, my phone whose body was manufactured in Taiwan, assembled in China, its software developed in the USA and sold to me by a retail store in India. This greater specialization enables lower average costs and lower prices for consumers.

Examples Of Globalization

Globalization as a process increase the movement of people, culture, technology, ideologies and information across the world. From the song we hear to many of the popular movies and novels, fashion, technology emigrate from one country to another.

The list can go on forever.Tried listing some of these below.

• Mc Donald’s – by the method of franchising they expand their business not only in their country but also overseas.
• Kentucky Fried Chicken(KFC) founded by colonel, is one of the top most food chain in the world.
• Ebay/ Amazon(E commerce companies) – Flow of goods and services, they are not only cheap and fast, but reliable and secure. You can order anything you wish from every part of the world.
• Smart phones, TVs, cars, laptops or computers, ipads, all smart devices.
• Social networking sites like facebook, Goggle, Whatsapp etc.
• Music, fast foods, fashion trends, sports, movies, books.
• Study tutorials- you just need an internet connection and any smart device (computer, laptop or phone) and by sitting in one country you can chat, learn or study from a person sitting in another country. Take live study lessons relating to any subjects, sports or games are another great example of globalization.

Our lives are so deeply influenced by the globalised economy that often we do not even recognize it. It is happening so fast, so it’s difficult for our brain to catch up.Its sometimes sad, that local identities and cultures are slowly disappearing , and now it’s difficult to bring back old good times.

Types Of Globalization

Globalization is a social, cultural, political and economic phenomenon.

Socially and culturally it provides opportunities to greater interaction among various population worldwide. It represents the exchange of ideas, values among cultures. Advancement in internet services and social media has a great role in this.

Good example, in this could include internationally popular films, books and T.V series etc. The Harry Potter film and books have been successful all over the world, making the character famous globally. Though social globalization is often criticized for eroding cultural differences.

Political Globalization means political co operation that is present between different countries. Global organization such as (World Trade Organization), United Nations (UN) and more regional organization such as European Union (EU) have helped to increase the degree of political globalization.

Economic Globalization refers to the integration of world economies through trade and the exchange of resources. As no economy works in isolation which clearly means one country economies influence each other. In terms of economic globalization it is seen that more developed countries sell their technology to countries which lack these (generally developing countries) and natural resources from developing countries are sold to the developed countries. It turns out to be a Two – way structure for technologies and resources.

We can say that Globalization is an unavoidable phenomenon in the history of mankind due to which economies are getting smaller and smaller by increasing the exchange of goods and services, information knowledge and cultures between different countries.

This process of interaction and integration has changed a lot in our everyday lives and is still progressing.This multidimensional and contradictory process brings to life the hopes and achievement that life can bring to it.

There is a run for greater competition, one of the main objective of globalization and this is only possible with market liberalization, economic integration and technology development.

Globalization – A look

In general terms Globalization means integration of the economy of the country with world economy.

It is the process of interaction and integration among people, companies and government worldwide.

It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.

Globalization attempts to establish links in such a way that the happening in one country can be influenced by events happening miles away, it is turning the world into one whole or simply creating a borderless world.

It has grown so much in today’s time mainly due to advancement in transport and communication technology.

With the increased global interaction comes growth of international trade, ideas and culture.

It is the spread of products, technology, information and jobs across national borders.

It can raise the standard of living in poor and less developed countries by providing job opportunities, modernization and improved access to goods and services by developed countries.

Why is there an equilibrium in the economy when AS=AD ?

Answer :

Because in such a situation, planned production in the economy is equal to planned purchases in the economy. The producers do not suffer:

(1) the burden of unwanted supplies or unsold stocks, or

(2) the loss of unfulfilled demand(due to lack of stocks)

When AS=AD, actual stocks with the producers = desired stocks with the producer.

Determinationof Equilibrium Income and output (1)

Determinationof Equilibrium Income and output (2)

State two approaches to the determination of equilibrium level of income in an economy ?

Answer :

Keyensian theory of income determination explains equilibrium level of income in terms of two approaches

1. Aggregate demand-aggregate supply approach

2. Saving- investment approach

In terms of Aggregate demand-aggregate supply approach, equilibrium level of income and output in the economy is the one where aggregate demand for goods and services is equal to the aggregate supply.

In terms of Saving- investment approach, equilibrium level of income is determined at that level of income where planned investment equals planned saving.

Also read:

Determinationof Equilibrium Income and output (1)

Determinationof Equilibrium Income and output (2)

Distinguish between autonomous and induced investment ?

Answer :

Autonomous investment is that type of investment which is not affected by change in the level of income or output .Therefore, it is income inelastic. However, autonomous investment may change in non – income factors like innovation of new techniques of production, discovery of new markets, growth of population, etc.

Induced investment, on the other hand, is that investment which is undertaken as a result of change in the level of income. It varies directly with the change in the level of income.

To know What is investment ?

Distinguish between private and public investment?

Also read : Induced and Autonomous Investment

What is Marginal Propensity to consume? How is it related to Marginal Propensity to Save?

Answer:

The marginal propensity to consume is the ratio of change in consumption expenditure to a change income.

Marginal Propensity to consume = Change in Consumption / Change in Income

MPC = ∆C / ∆Y

The marginal propensity to save is the ratio of change in saving to a change income.

Marginal Propensity to save = Change in saving / Change in Income

MPS = ∆S / ∆Y

Aggregate of marginal propensity to consume and marginal propensity to save is equal to one

MPC + MPS = 1

Also read : 

Consumption function

Saving function

Can MPS or MPC ever be negative?

Answer :

No, neither MPS or MPC can ever be negative. Because MPS is the ratio between additional saving (∆S ) and additional income(∆Y). Likewise, MPC is the ratio between additional consumption (∆C) and additional income (∆Y). The ratio ∆S / ∆Y refers to slope of Saving function which is always positive because of positive relationship between S and Y. Likewise, the ratio ∆C / ∆Y refers to slope of consumption function which is always positive because of positive relationship between C and Y.

Also read :

Consumptionfunction

Savingfunction

Explain that sum total of MPC and MPS equal to 1 ?

Answer : 

We know that:

MPS = ∆S / ∆Y

MPC = ∆C / ∆Y

We also know that:

(Additional income is either used in increasing consumption or saving)

∆Y = ∆C +∆ S

(Dividing both sides of the equation by ∆Y)

∆Y / ∆Y = ∆C / ∆Y + ∆S / ∆Y

1 = MPC + MPS

So that,

MPC + MPS = 1

Or, MPC = 1 – MPS

Or, MPS = 1 – MPC

MPC is generally less than unity and greater than zero. It means that a part of increase in income is consumed and the other part is saved.

So, the aggregate MPC and MPS must be equal to unity. Thus, if half of the increase in income is spent on consumption, the other half must be saved.

So that when MPC = 1/ 2 (half), then MPS = 1/ 2(half) also implying that

MPC + MPS = 1 always.

Explain that sum total of APC and APS equal to 1 ?

Answer :

We know that:

APC = C / Y

APS = S / Y

We also know that:

Y = C + S (income is either consumed or saved)

(Dividing both sides of the equation by Y)

Y / Y = C / Y + S / Y

1 = APC + APS

So that,

APC + APS = 1

Or, APC = 1 – APS

Or, APS = 1 – APC

Give the equation for a linear consumption function?

Answer:

The general equation for a linear consumption function is expressed as:

C = a + cY

Where,

C : is the aggregate consumption expenditure

a : represent a positive constant equal to the level of consumption at zero level of income or autonomous consumption.

c : denotes marginal propensity to consume or the slope of the consumption line

Y : Income
Explain consumption function in tabular and graphical form? To know about this read  

Tabularexplanation of Consumption function

Graphical Explaination of the Consumption function

In APC and MPC the value of which parameter can be greater than one and when?

Answer : 

Value of APC can be greater than one. It happens when the level of income is low and C >Y.

Value of MPC cannot be greater than one. MPC is the ratio between additional consumption and additional income (∆C / ∆Y). Since additional consumption is only part of additional income, and after certain level of income is reached, people start saving a part of income.

Since increase in consumption (∆C) is less than that of increase in income (∆Y) the value of MPC must be less than one or cannot be greater than one.

Explain why MPC is always positive and not greater than one?

Answer :

According to Keynesian Consumption function, there is always some minimum level of C (consumption) irrespective of level of Y (income), since at zero level of income also people will consume (past savings), so consumption is positive. Thus MPC is always positive, cannot be less than zero.

Also an increase in Consumption tends to lag behind the increase in income, because, after certain level of income is reached, people start saving a part of income. Since increase in consumption (∆C) is less than that of increase in income (∆Y) the value of MPC must be less than one.

Thus,

MPC (c) ranges from zero and 1 0 < c < 1

Define Average and Marginal Propensity to consume? Explain with a numerical example.

Answer :

The average propensity to consume (APC) refers to the proportion of income devoted to consumption.

It defines the relationship between total consumption and total income.

APC = C/Y

Marginal propensity to consume refers to the ratio of change in consumption to change in income.

MPC = ∆C / ∆Y

For example:

If income (Y), is Rs. 100 crore and consumption (C) is Rs. 80 crore, then

APC = C / Y

APC = 80 / 100 = 0.8 or 80 %

This indicates that 80 per cent of the income is spent by way of consumption expenditure in the economy.

If income (Y), increases to Rs. 1200 crore and consumption expenditure increases to Rs. 900 crore,

then MPC = ∆C / ∆Y

MPC = 900 - 800 / 1200 – 1000

         = 100 / 200 = 0.5

it means that change in income by Rs. 200 crore has caused a change in consumption by Rs. 100 crore.

What is Fundamental Psychological Law?

Answer :

This law is propounded by Keynes. It states that as income of the people increases, their consumption also rises. But the entire increase in income is not converted into consumption. A part of it is often saved. Also the rate at which consumption increases is often less than the rate at which income increases.