Question

Question Five Write short notes on the following: a) Methods of measuring of National Income. b) Efficiency versus Equity, and the Pareto Criterion. c) The voting paradox of Condorcet. d) Development challenges of the 21st Century. e) Factors contributing to slow growth in Africa

Answer 1

ANSWER A. Methods of estimating National Income

Value added method

This method is used to measure National income in different phases of production in the circular flow. It shows the contribution of each producing unit in the production process. Every individual enterprise at certain value to the product which purchase from some other firm as intermediate goods. When value added by each and every individual format some dub we get the value of national income. value added refers to the addition of value to the raw material by a firm by virtue of its production activities. it is calculated as the difference between value of output and value of intermediate consumption.

Value added = value of output - intermediate consumption

Income method

It measures national income from the perspective of factor Income. under this method income received by all the residents of a country for their productive services during the year are added up to obtain the national income. According to this method all the income that accrue to factors of production by way of wages, rent, Interest, profits etc aur summed up to obtain the national income.

the sum total of all the factor income earned within the domestic Territory of a country is known as domestic income.

Domestic Income = compensation of employees + mixed come of self employed + operating surplus

Expenditure method

​​​​​​ Factor income earned by factors of production is it spent in the form of expenditure on purchase of goods and services produced by firms. It measures national income as sum total of final expenditure incurred by households, business firm, Government and rest of the world. This total final expenditure is equal to Gross Domestic Product at market price.

Answer B. Efficiency vs equity

Efficiency refers to optimum or maximum production by allocating the resources that are given and fixed. It can also be defined as optimal utilisation of of given resources that are assumed to be limited. It includes avoiding the wastage of resources and ensuring its fuller utilisation. However the concept of equity revolves around distribution of resources in the society.

Pareto was the first economist find out in objective test of social welfare maximum. Pareto criterion states that welfare is said to increase or decrease if at least one person is made better off or worse off with no change in the position of others. in other words any change which harms no one and which makes some people better off must be considered to be an improvement.

Answer C. Voting paradox of Condorcet

Voting paradox of condercet state that preferences can be cyclic, even if the preferences of individual voters are not cyclic. In other words majority preferences may not match with each other.

For example majorities may prefer L over M , M over N, N over O. This occurs because the conflicting majorities are made up of different individuals.

Answer D. Developmental challenges of 21st century

Poverty. ​​​​​​ In the 21st century the biggest challenge with all the countries are facing is poverty. About 300 million people are not abe to meet their basic needs. Potty is a call to action for the poor, call to change the world so that many more may have enough to eat, adequate shelter, access to education and health, protection from violence and a voice in what happens in their communities. In a developing country a large proportion of the population is deprived of even minimum amenities of life for quite a long time. It can be said that such as a nation lives in poverty, grows in poverty and remains in vicious circle of poverty.

Human capital formation. We need a good deal of training and skill to do things efficiently. we know that the labour skill of uneducated person is more than of an uneducated person and hence the former is able to generate more income than the latter and his contribution to economic growth is consequently more. We need good human capital to produce other human capital. this means we need investment in human capital to produce more human capital out of human resources.

Infrastructure. Infrastructure plays a very important role in development of a nation. It is very important for economic and social growth of a country. It provides supporting services in the main areas of industrial and agricultural production, domestic and foreign trade and Commerce. it refers to those basic elements of economic and social aspects which provide support to the production activity in the economy.

Women's health. Women suffer many disadvantages as compared to men in the areas of education, participation in economic activities and healthcare. The deterioration in the child sex ratio, female foeticide, abortions have cause morbidity and mortality among women, maternal deaths due to anaemia and nutritional anaemia are the biggest challenges.

Sustainable development. Environment and economy are interdependent. Hence development that ignores its effect on the environment will destroy the environment that sustains life forms. What is needed for sustainable development, development that will allow all future generations to have a potential average quality of life that is at least as high as that which is being enjoyed by the current generation.

Answer e. Factors contributing to slow growth in Africa

The poor economic policies have played an important role in the slow growth of Africa. Africa's lack of openness to international market and geographical factors such as lack of access to the sea and tropical climate have also contributed to Africa slow growth.

1. Low savings rate

Household savings rate in Africa for the fourth quarter of 2007 was very low of 0.2 %. While this doesn't represent an improvement over the past three years it falls well below the level needed to support their investment spending and compares unfavourably to other emerging market countries.

2. Weak education system.

South Africa irregularly scores near the bottom in all education achievement full stop the country rank 75 out of 76 in the ranking table of education system drawn up by the organisation for economic cooperation and development (OECD) in 2015 .

3. Lack of skilled workforce

Lack of a skilled workforce is rated by the WEF as the third-most problematic factor for doing business in South Africa and is clearly a hindrance to economic progress and performance.

4. Constraints on small and medium sized enterprises (SMEs)

High levels of bureaucracy, a substantial tax burden and restrictive labour regulations contribute to unnecessary restrictions placed on SMEs and prevent them from being greater job creators than they currently are.