Primary product dependency

12 flashcards · Economics · by Addaneye

  1. 3 key characteristics of primary products that cause problems

    Demand for primary products is price inelastic The supply of primary products is price inelastic Demand for primary products is income inelastic

  2. Problem with price inelastic demand for primary products

    Price Instability - A small change in quantity demanded will lead to a large change in price

  3. How does price instability constrain growth?

    Unstable prices >> difficult for investors to predict future prices >> lower levels of investment >> AD and LRAS stays inwards Lower levels of investment >> lower profit for firms >> lower corporation tax revenue >> limited spending on development

  4. How can governments reduce price instability?

    Buffer stock schemes

  5. How do buffer stock schemes work?

    The government will set a price floor and a price ceiling and sell or buy stock to change supply and keep the price within this range

  6. Buffer stock schemes - evaluation

    Producers may overproduce knowing that the government will buy their goods >> can become expensive >> opportunity cost of spending on development >> limited development

  7. What is the Prebisch-Singer hypothesis?

    As world incomes rise, countries who depend on the export of primary products and the import of manufactured products will see their terms of trade worsen

  8. How does the Prebisch-Singer hypothesis constrain growth?

    Primary product dependency >> deterioration of terms of trade >> cannot afford capital imports >> low investment >> low AD & LRAS >> limited economic growth

  9. What is the Lewis Model (industrialisation)?

    manufacturing firms give workers low paying jobs in their factories >> firms can make supernormal profits due to low wages >> firms invest and expand >> increase in demand for workers >> increase in wages >> more workers want to work in manufacturing firms

  10. Industrialisation - evaluation

    Industrialisation may not lead to development if firms use transfer pricing to avoid paying corporation tax

  11. just have a look at this. i think its the lewis model. im not acc too sure. yeah i just checked it is.

  12. The Global Financial Integrity research group found that hundreds of billions of dollars were lost through transfer pricing each year