4.3. Indicators of Living Standards

Question 1

Economic Development Meaning

Answer 1

Economic growth and improvements in living standards, such as better:health, education, government, market conditions, freedom

Question 2

Monetary indicators

Answer 2

Income per capita

Question 3

Non-monetary indicators

Answer 3

Freedom, education, health care, life expectancy, governance, literacy, discrimination, crime, corruption

Question 4

Indicators of Economic Development and Living Standards

Answer 4

1) GDP per capita
2) Human Development Index (HDI)
3) Measure of Economic Welfare (MEW)
4) Multidimensional Poverty Index (MPI)

Question 5

GDP per capita

Answer 5

a measure of a country’s economic output that accounts for its number of people

GDP / population

Question 6

Advantages of using GDP per capita

Answer 6

• Easy to calculate

- Useful for comparisons (time, country)

Question 7

Disadvantages of using GDP per capita

Answer 7

• Narrow measure - only considers income
• Ignores non-monetary factors
• Misleading - it is an average only
• Ignores unrecorded activity
• Ignores income distribution
• Different versions - (nominal v.s real and market rates v.s. PPP)

Question 8

Human Development Index (HDI)

Answer 8

A composite index of three equally weighted components of development (1/3 each):

• income - GNI per capita
• health - Life expectancy
• education - Expected years of schooling and Mean ave. years of schooling

0.8 to 1 - HIC

Question 9

Advantages of using the Human Development Index (HDI)

Answer 9

• Broader measure of living standards than GDP per capita

- Includes both monetary (GNI per capita) and non-monetary factors (health, education)

Question 10

Disadvantages of using the Human Development Index (HDI)

Answer 10

• Gives value for country as a whole - ignores differences within a country.
• Equal weighting between income, health and education.
• Ignores many other areas of development (e.g. freedom, income distribution, crime, poverty, corruption).

Question 11

Measure of Economic Welfare (MEW)

Answer 11

measures not only the total national output (GDP) but also includes the economic welfare of the country

Question 12

MEW =

Answer 12

value of GDP + value of leisure time + value of unpaid work - environmental damage

• economic output = value of GDP
• economic welfare = value of leisure time + value of unpaid work - environmental damage

Question 13

Advantages of using the Measure of Economic Welfare (MEW)

Answer 13

• Comparing this measure to GDP, it is an instant reaction to all of us that this measure is better than GDP as it includes economic welfare. This is because including economic welfare would mean it could better measure the standard of living in the country
• it also takes in to account the value of environmental damage caused by industrial production and consumption, like for example pollution, which will further make the calculation of living standards accurate

Question 14

Disadvantages of using the Measure of Economic Welfare (MEW)

Answer 14

• MEW takes value for whole country, but ignores differences within the country.
• there is GDP per Capita so there are disadvantages of using GDP per Capita too
• difficult to measure economic welfare

Question 15

Multidimensional Poverty Index (MPI)

Answer 15

uses health, education and standard of living indicators to determine the degree of poverty experienced by a population
- Replaced the HPI (Human Poverty Index)

Question 16

Multidimensional Poverty Index (MPI) Features

Answer 16

3 Dimensions:

1) Health (1/3)
- Child mortality (1/6)
- Nutrition (1/6)
2) Education (1/3)
- Years of schooling (1/6)
- School attendance (1/6)
3) Living Standards (1/3)
- Cooking fuel (1/18)
- Toilet (1/18)
- Water (1/18)
- Electricity (1/18)
- Floor (1/18)
- Assets (1/18)

Question 17

Advantages of using the Multidimensional Poverty Index (MPI)

Answer 17

• flexibility - Indicator and the aggregation of indicators within dimensions are flexible and can chosen for case.
• Target the poorest more effectively.
• Compare the composition of poverty in different districts, groups, communities, regions individuals or states.

Question 18

Disadvantages of using the Multidimensional Poverty Index (MPI)

Answer 18

• Data reflects inputs (e.g. cooking fuel) and outputs (e.g. years of schooling) but does not reflect capability.
• Health data is relatively weak / limited.
• Judgements needed where data is not available.
• Intra-household inequality may be severe but could not be reflected.
• Does not measure inequality among the poor.
• Based on publicly available data between 2006 - 2017.

Question 19

Other concepts linked to Living Standards

Answer 19

1) Lorenz Curve
2) Gini Coefficient
3) Kuznets Curve

Question 20

Lorenz Curve

Answer 20

a graphical representation of inequality.

• y-axis = cumulative % of national income - max 100%
• x-axis = cumulative % of population - max 100%
• 45° Line (perfect equality)
• curves for all countries are under the line of perfect equality
• near 100% the curves for countries are steepest
• from 0 to 50% the gradient is very gentle
• the curve of the country closer to the perfect equality line = more equal country

Question 21

Gini Coefficient

Answer 21

A statistical measure of inequality.

• on the Lorenz Curve
• 0 = perfect equality
• 1 (or 100%) = perfect inequality

Question 22

Gini Coefficient =

Answer 22

A / (A+B)
A = area above curve
B = area below curve
- the curve of the country closer to the perfect equality line = more equal country

Question 23

Kuznets Curve

Answer 23

as an economy develops, market forces first increase and then decrease economic inequality.

• y-axis = inequality
• x-axis = income per capita
• the curve is a mountain shape
• when curve is rising = Rural-urban migration keeps wages low & provides investment opportunities for those with money
• when curve is falling - Development of welfare state (benefits) and “trickle-down” economics
• can be applied to many other things, including environmental damage.

Question 24

Kuznets Curve Evaluation

Answer 24

• BUT: It appears to be the other way around: inequality reduces and then gets wider! (like in the US)
• AND: Inequality continues to widen.