Social accounting and global trade 1

Standard of living

Standard of living refers to the level of living which a person, family or whole nation maintains, in terms of the various amounts of and kinds of goods and services consumed. Standard of living varies from person to person, family to family and nation to nation. It also varies over time. The national standard of living means the average standard of living of all the persons living in that country.

Quality of life looks at the extent to which a person, family or nation enjoys the benefits of its wealth. A country may have a high standard of living in terms of being able to provide many goods and services for its people, but the quality of life may be low if the people are not able to access the wealth provided.

Factors indicating standard of living of a country
(wealth of a country)

• The level of consumption of goods and services. Generally speaking, the greater the amount of goods and services consumed, the higher will be the standard of living. The counter argument to this is that the quality of the goods and services may have deteriorated while the level of consumption increased. The question, therefore, would be, did the standard of living really increase?
• Average disposable income of the population. Disposable income refers to net income, the amount of money that is available to be used as one would like to. In economics, disposable income is either spent on consumption goods and services or saved. As far as standard of living is concerned, the higher the average disposable income of the population, the higher will be the standard of living. The counter argument here is that the disposable income may be high, but if it is unequally distributed, many people may have a low standard of living.
• The level of national ownership of capital equipment. As a country increases its ownership of capital equipment, it is able to produce more goods and services and, thereby, increase its standard of living. However, this means that they will first have to save or reduce consumption in order to accumulate this capital. During this time, the standard of living may actually fall.
• Access to modern technology. Modern technology enables a country to produce more and to produce more efficiently, thereby, increasing standard of living. However, for developing countries like Jamaica, the cost and maintenance of modern technology is high which often results in loss of jobs. This, in turn, means a lower standard of living.
• The level of investment in research and technology. The more a country spends money in research and technology, the greater will be its improvements in the level and quality of goods and services and then the greater will be the standard of living. Again however, cost becomes a dominant factor as research and technology can be very costly.

Indicators of a country’s quality of life

Quality of life refers to the extent to which the country enjoys the benefits of its wealth. The factors that affect this include:

• The extent of security enjoyed. The greater the level of security enjoyed by the citizens, the greater will be the quality of life. High levels of crime can prevent citizens from accessing the wealth that will increase their quality of life.
• The availability of health, educational and recreational facilities. Greater access to these will surely increase the quality of life. Access, however, may be dependent on ability to pay. Governments can increase a nation’s access to these areas by subsidising the cost, or by providing them free of cost.
• Diet and nutrition. The amount of food and drink is not the important thing as far as quality of life is concerned. If people are not having balanced meals, then their diet and nutrition will be poor and the quality of life will fall even if they are consuming more.
• Life expectancy. This refers to the average number of years a person is expected to live. If people are expected to live longer than before, it will mean that the quality of life has, in fact, increased.
• The rate of infant mortality. Infant mortality refers to death among infants. If a country is experiencing reduced death rates among infants, then their quality of life would be said to have increased. This could be because of improved research in health and improved health or greater access to health care.
• Access to public utilities. The greater the access to public utilities such as electricity and portable water, the greater will be the quality of life. If only a few persons in a country have access to these utilities then, generally speaking, the quality of life will be very low.

The distinction between economic growth and development

Economic growth is a quantitative concept; that is, it deals with numbers or figures or amounts. It refers to the real growth in or expansion in national output, and is most often measured in terms of real Gross Domestic Product (GDP).

The concept of economic growth is positive. This means it always refers to an increase in output. Negative growth, while quantitative, as is economic growth, refers to a decrease in the national output.

The production possibilities frontier can be used to illustrate economic growth. A production possibilities curve is a curve showing all the possible combinations of two goods that can be produced using up all the resources and at a given state of technology. When economic growth takes place, the production possibilities curve shifts to the right. The curve may shift to the right and economic growth results if the productivity of labour or other factors of production improve; if there is an improvement in technology; or if there is an increase in resources.

Try to find a diagram of a production possibilities curve. Copy it into your notebooks then shift the curve to the right. The first curve represents production possibilities for the country NOW, and the second one will represent the production possibilities at a future date, for example, five years later.

Economic development is qualitative and refers to the process by which the standard of living and the well-being of the entire nation are improved by raising real per capita income. Economic well-being is concerned with the quality of housing, clothing, education, food, health, peace of mind, security, eradication of poverty and eradication of inequalities in income and wealth, and so on. If any of these factors increases or improves, there will be economic development.

Human resource development looks at improving the human resources of labour and entrepreneurship. Improvement of labour and the entrepreneur means that the productivity of both will increase. In turn, there will likely be an increase in economic growth and development.

The human resource can be improved through education, training or retraining, improved health facilities, improved working conditions and an improvement in the factors of production that they have to work with.

The role of education in economic growth and development

Improved education and training means that labour and entrepreneurship will now have greater capacity to increase the national output and improve the well-being of the nation. Through education and training, labourers may learn new and more efficient methods of production and, thereby, increase the overall output. The entrepreneur might learn how to better organise and bear risks, thereby, causing improved output and improved economic well-being. Education, thus, improves the productivity and efficiency of both of the human factors.

Now for your homework:

(a) Distinguish between economic growth and economic development (6 marks)

(b) Why is economic growth regarded as a quantitative concept while economic development is regarded as a qualitative concept? (4 marks)

(c) Discuss TWO factors that might result in economic growth and TWO factors that might result in economic development (8 marks)

(d) Explain ONE way in which education can cause economic growth and development (2 marks)

Total marks: 20