AE 312 DEVELOPMENT ECONOMICS
WEEK 1 TUTORIAL QUESTION AND ANSWERS
Question 1: Define and explain the term ‘Development Economics’ or (‘Economic development’).
Answer 1: ‘The process of improving the quality of all human lives, and capabilities by raising
people’s levels of living self-esteem and freedom’ ( Source: Todaro and Smith 2012: 5).
Answer 2: ‘A sustainable increase in the welfare of the majority of people of a country, subject to the
stipulation that poverty and income inequality to do adversely impact the welfare of the people’
(Source: Eatwell J, Milgate M, Newman P, The New Palgrave Economic Development, Macmillan
Reference Books, London, April 1989).
Answer 3: ‘A process of economic transition Involving the structural transformation of an economy
through industrialization and raising of gross domestic product (GDP) and income per capita’ (Source:
Pass et al 1988: 149).
There is a difference between (a) improvement of the ‘welfare’ of the majority of the people of a
country over time , and (b) an improvement of the economic structures of a country (such as GDP,
Expenditure, Employment etc..), over time.
Question 2 For further discussions among students in class: Which one is more important, (a)
improving welfare of the majority of the people in a country, or (b) improving the structures that
benefit the majority of the people in a country?
Answer 2: Generally in the economists believe that both (a) and (b) are important. Answer (b) assists
and enhances answer (a). However in practical terms many governments of most countries find it quite
difficult to solve both (a) and (b) simultaneously.
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AE 312 DEVELOPMENT ECONOMICS
WEEK 2 TUTORIAL QUESTION AND ANSWERS
Question 1: Why do economist produce so many economic development theories, which do not
appear to explain the unique situations in all the developing countries?
Answer 1: It seems the main reason why economist have produced so many theories about
developing economies in the world, which do not seem to explain unique situations in the developing
countries is because each developing country is quite unique in themselves. All countries cannot be
fitted into one theory to explain them all in one economic theory.
Answer 2: It also because each human being is so unique that they do not fit into one explanation
(theory). Explanation (a): All police detectives know very well that each human being is unique in this
world. The police use this information to use human finger prints to track down and catch an
international criminal. Explanation (b): Psychologist Abraham Maslow knew this. Maslow produced a
unique Theory in 1943 which is still valid for the human beings in 21st century (See Maslow’s theory in
Lecture 3).
Question 2: If each human being is so unique and if each country is so unique, then how should
economists begin to properly measure ’Economic development’ (Development economics)?
Answer 2: Part C of Lecture 2 attempts to solve the problems of the difficulties of measurement (Read
Part C of lecture 2).
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AE 312 DEVELOPMENT ECONOMICS
WEEK 3 TUTORIAL QUESTION AND ANSWERS
Question 1: What is Maslow’s hierarchy of human needs?
Answer 1: Maslow hierarchy of human needs is a pyramid- like structure of human needs, developed
by Abraham Maslow in 1943 (See the structure in notes for Lecture 3).
FIGURE 1 MASLOW’S HIERARCHY OF NEED
SELF ACTUALIZATION
(Morality; spontaneity
acceptance, meaning,
inner potential)
SELF ESTEEM
(Confidence,
achievement,
respect others,
need to be a unique individual)
LOVE & BELONGINESS
(Friendship, family, intimacy, sense of connection)
SAFETY AND SECURITY
(Health, employment, property, family, social stability)
PHYSIOLOGICAL NEEDS
(Breathing, food, water, shelter, clothing, sleep)
Source: Abraham Maslow 1943
Maslow said that there are five basic layers in the human hierarchy of needs.
Question 2: Carefully describe Maslow’s hierarchy of human needs.
Answer: They are described from the basic/lowest to the highest are as follows;
• Physiological needs. Refers to all physical human needs
• Safety needs: Refers to human needs of security
• Love and belonging needs: Refers to human needs of love and belonginess
• Self-esteem needs: Refers to all human needs about self-esteem
• Self-actualization needs: Refers to all highest human needs, that humans feel
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AE 312 DEVELOPMENT ECONOMICS
WEEKLY 4 TUTORIAL QUESTION AND ANSWERS
Question 1: Name and explain each of the four (4) different methods of Measurement which
economists have used the measure ‘Economic development’.
Method 1: The 1st approach is Statistics of GDP or GNP. When we divide the GDP or GNP by human
population we can derive the per capita income of a country. Using GNP statistics to measure
‘Development’
• Advantages of Per capita income: Fast and clear calculations
• Disadvantages of per capita income: Conceals very rich and very poor people; conceals other
problems such as environment damages, pollution, etc..
Method 2: Index of Sustainable Welfare (ISEW).
Advantages of ISEW: It is a much better method than the per capita income because it takes into
account factors that impact on human welfare, such as environment damages.
Disadvantages of ISEW: However, to calculate it well, a country needs to systematically and properly
and on timely basis collect and preserve all the necessary statistics of all peoples in a country. This is
much harder because it takes time and it incurs a lot of resources of a country.
Method 3: Human Development Index (HDI), the method was originally created by a Pakistani, an
economist.
Advantages: It seems to be a middle ground method for almost all the LDCS. It measures only three (3)
Indices and takes the average of the three indices. The three indices are (a) Income (b) Health and (c )
Education.
Disadvantages: For one country with its own currency, it could be done systematically over time.
However the fact that different countries have their own currencies implies at least two problems
(a) that a researcher needs to covert the values of the calculations to one international currency for
comparison (b) the researcher also needs to use a concept known as Purchasing Power Parity (PPP).
(The Students need to learn how to calculate the PPP through their tutor)..
Method 4: New Human Development Index (NHDI). In November 2010 the United Nations had made
eight (8) changes to the older version of the HDI. The three indices are still maintained. However the
new 8 changes to the HDI should IMPROVE the ways in which the HDI measures ‘development’ in
the LDCs. (Study the 8 changes presented in Lecture 4).
A new insight: From non on all LDCs should be urged to begin to keep and calculate the three indices.
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AE 312 DEVELOPMENT ECONOMICS
WEEKLY 5 TUTORIAL QUESTION AND ANSWERS
Question 1: What are the main features or characteristics of the LDS in 21 st century?
Answer 1: The main features or characteristics of the many LFCS are summarized in Lecture 5. The main ones are summarized
in ten (10) areas hereto;
(1) More limited natural resource endowments,
(2) Lower per capita incomes;
(3) Larger population sizes and growth rates;
(4) Fewer migration possibilities, but a larger brain-drain problem among those who do migrate;
(5) Fewer benefits from international trade;
(6) Greater cultural heterogeneity;
(7) A less temperate climate;
(8) Limited scientific and technological research capacity;
(9) Less stable and flexible institutions;
(10) The contemporaneous presence of developed countries.
Question 2: How do we apply Kuznets six (6) characteristics for PNG today?
The Answers:
(1) High rates of growth of per capita incomes. Since independence PNG could muster between and average of -1% and
1%. Only from 2014 PNG may record economic growth at 21% per according to Asian Development Bank (Media:
April 2014).
(2) High rates of growth of total factor productivity. Factor income has not grown much. Wages have come under
Minimize wages
(3) High rates of structural transformation of the economy. Structural transformation was sluggish due to inefficiency or
ineffectiveness of Tender process and bad management of infrastructure development since independence.
(4) High rates of social and ideological transformation. Most PNG people got stuck with mundane anti-social ideas of
‘Wantok system’
(5) Growth of trade, specifically import of raw materials and export of manufactures. Sometimes exports were high only
when exchange rates were low. Growth of LNG may induce high exchange rates which may slow down non-LNG
exports in PNG.
(6) Limited spread of development to only a third of the world population. In PNG economic development has benefited
those people who had had excess to education, business opportunities and work opportunities.
It is stressed that like PNG, many LDCs began modern economic growth with initial conditions much different than PNG. A
comparison of many LDCs with PNG is as follows;
(7) Many LDCs have limited natural resource endowments, unlike PNG. PNG has relatively much more natural resources.
(8) Many LDCs have lower per capita income than PNG. PNG is in gradually coming closer to middle income countries
(9) Many LDCs have higher population growths than PNG. On average PNG’s population growth is about 3% per year.
(10) Many educated people leave their countries. Every year PNG does face the problems of ‘Brain drain’
(11) Many LDCs have current account deficits impacting them. PNG is beginning to face some of the problems of current
account deficits.
(12) Many LDCs may have greater cultural heterogeneity. For PNG we have over 800 different languages. Yet PNG has
survived to date. Example. Provinces like Enga may benefit from cultural homogeneity.
(13) Many LDCs exist are like PNG. Mots LDCs and PNG have less temperate climate,
(14) Many LDCs are improving in the technologies. Many LDCs also have limited scientific and technological research
capacity. Examples. In South Korea and Malaysia young engineer are leading in technologies. Our University of
Technology needs to improve and catch-up dramatically, in terms of innovations in new technologies.
(15) Many LDCs have less stable and flexible institutions. Example. PNG’s institutions are suffering from lack of
productivity and growth. They also lack initiative to become progressive in new innovations commencing in the
Universities, such as the Unitech and UPNG.
(16) Many LDCs have contemporaneous of presence of developed countries. It is similar in PNG. Example. Presence of
firms of western countries cause mixture of perceptions about benefits and costs of western firms in PNG
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AE 312 DEVELOPMENT ECONOMICS
WEEK 6 TUTORIAL QUESTION AND ANSWERS
Question 1: What is the Sustainable Net National Income (NNI)?
Answer 1: The amount of Income that can be consumed in a country with respect to the environment, without diminishing
the capital stock is shown.
Symbolically;
NNI* = GNI - Dm – Dn (Equation 1)
where
NNI* is sustainable National income,
Dm is depreciation of Manufactured capital assets,
Dn is depreciation of environmental capital—the monetary value of environmental decay over the course of a year.
NNI* includes costs of activities to reverse or avert environmental decay.
Question 2: How can we apply the concerns of the environment to PNG economy? (See Figure 1 below).
Figure 1 Material balance perspective for PNG economy
Q
I
Fabrication Consumption
Extraction Base
IS
processing
IR/T
Non-Product
WP Output WPR IS
Modification
IR/T
Activity
Recycling
WPR
Environment
Environment as Damage
Waste Receptor (Externalities)
Source: Drawn by G Gipe 25/02/21 from Pierce & Turner, Environment Economics, 1999
Where
I = Primary material and energy Inputs
IS = Secondary (recycled) inputs
IRT= Primary input for recycling
WP = Residual Requiring disposal
WPR = Residual generated during treatment and recycling
Q = Final product
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AE 312 DEVELOPMENT ECONOMICS
WEEK 7 TUTORIAL QUESTION AND ANSWERS
Question 1: Why do LDCs attempt to plan economic development?
Answer 1: The term “planning” we mean generally thinking and/or arranging activities and resources
ahead of time, so that the future is not left to chance. Broadly there are two types of planning.
LDCs plan because they do not want to leave development in their countries to chance.
Question 2: What are the three (3) Models of planning? List and explain them.
Answer 2: The Harrod -Domar Growth Model.
Model 1: The H-D model explains economic growth rate in terms of the level of savings and productivity
of capital. Thus Y represent output, which equals income, and let K equal the capital stock. S is total
saving, s is the savings rate, and I is investment. δ stands for the rate of depreciation of the capital stock.
Thus the savings rate times the marginal product of capital minus the depreciation rate equals the
output growth rate. Increasing the savings rate, increasing the marginal product of capital, or decreasing
the depreciation rate will increase the growth rate of output; these are the means to achieve growth in
the H-D model.
Model 2:
The model was originally created by W Leontieff. The model use data of input and output as the basis
for estimating existing production and projection of future economic growth.
Model 3 Project Appraisal
The government may carry out Project Appraisal (PA) with reference to including capital budgeting. By
project appraisal we are referring to the government appraising projects before making investments.
Example. The PNG Government requires that financial and economic feasibility studies be done before
large mining and other firms make investments. Some of the Capital Budgeting techniques include but
capital budgeting are not limited to calculations of the; (a) Net Present Value (NPV), (b) Internal Rate
of Return, (IRR) (c ) Payback period (PBP) and (d) Profitability index (PI) etc.. The government analysts
may use Cost-Benefit analysis as a tool for projects planning.
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AE 312 DEVELOPMENT ECONOMICS
WEEK 8 TUTORIAL QUESTION AND ANSWERS
Question 1: Why do Todaro and Smith say that a LDCs Balance of Payments (BOP) are very important
for the viability of financing of the regular development activities? Carefully explain.
Answer 1: Let us begin with the BOP Model (See Figure 1).
Figure 1 The Balance of Payment Model
Visible Balance of Trade
Current Account
Invisible Balance of Service
Balance of Payment
Official (Govt to Govt)
Capital Account
Private (All Corporations)
Source: G J Gipe, February 2021
Todaro and Smith say that if the LDCs have problems with their Current accounts, they will not have a
viable financial accounts with the rest of the world with respect to their accounts. Example. If the LDCs
have outstanding debts, say from the World bank of the International Monetary fund (IMF), these
debts will incur outstanding payments for (a) the principle (b) the interest.
The LDC will then be forced to divert their meager resources to repayments of the principles and the
interest rates.
As a result of these diversions, the LDCs may not have the resources to spent in their local plans (such
as on health and Education).
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AE 312 DEVELOPMENT ECONOMICS
WEEK 9 TUTORIAL QUESTION AND ANSWERS
Question 1: Name and explain the three challenges that are now facing the world in 21st century?
Answer 1: The three challenges that are now facing the world in the 21st century are identified as
follows; (a) Concerns about the environment (b) Globalization and (c ) International Trade Reforms
CONCERN 1 ENVIRONMENT: Human beings are now very much concerned about the impacts of
economic development on the environment. Several years ago there was scientific study done by some
prominent scientists. It was titled, The Limits to Growth, and written under the auspice of the Club of
Rome, a pseudo name. The study made by prominent scientists and mathematicians essentially
concluded that present rates of economic growth would lead to dire consequences for the countries
of the world.
Another study was done directly in relation to the first study. While it disputed some of the assumptions
of the earlier study, the second study basically concluded similar findings, that the countries of the
world needed to moderate the rates of economic growth which were cause by certain patterns of life
and living.
Since these studies were done, the world leaders have been meeting to moderate o mitigate the
damages to the environments.
Example. A few years ago an accord was signed in Rio then recently in Parish. In the last 4 years the
USA (under previous President Donald Trump) denied the thinking of the scientists.
CONCERN 2 GLOBALIZATION: The term ‘Globalization’ is a process by which the economies of the
world become more integrated, leading to a global economy and, increasingly, global economic
policymaking, for example, through international agencies such as the World Trade Organization (WTO)
(Todaro ch 12 pages 565-566).
Why should leaders of the world be concerned when the economies of the world became relatively
more integrated, and the world becomes more like one large village? Because different kinds of
problems or issues will arise. Example 1. Peoples of the world could rise together or fall together.
Example 2: When a pandemic occurs the peoples of the world can fear the worst possibilities, even with
advanced knowledge and improved technologies
CONCERN 3: INTERNATIONAL TRADE REFORMS: In 1950s discussions were held between the
Developed Countries (DCs) and the Less Developed Countries (LDCs), inspired by the now famous
SINGER-PLEBISCH THESIS. This thesis said that over the years the prices of the manufacturing goods of
the DCs have been RISING relatively more steadily, and the prices of the agriculture commodities of
the LDCs have been FALLING relatively steadily over the same time period. As a result the LDCs have
been placed at DISADVANTAGES in terms of economic benefits hence economic development.
More recently there have been attempts to hold dialogues between the DCs and the LDCs. Many of the
attempts have failed. Meanwhile other changes had taken place; (a) Many LDCs are entering into
manufacturing goods and services and compete with the DCs (b) There has been trade being held
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between and among the LDCs themselves. Even then countries have called for international trade
reforms for other wide and more serious reasons.
Three examples;
(a) The Fiat currencies that many countries have used up to now have outlived their usefulness,
and other developments are taking over; such as crypto currencies. One example is the Bit-coins are
being used by some people.
(b) The total volume of goods and services of the world have risen relatively faster than the value of
the monies to pay for them in recent years.
(c ) The International receipt and the payments system need to be revamped etc..
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