Chapter 32

290
Living standards
Learning objectives
By the end of this chapter you will be able to:
■ describe indicators of living standards
■ discuss the advantages and disadvantages of real GDP per head and HDI as indicators of
living standards
■ explain how income and wealth inequality are measured
■ analyse the reasons for differences in living standards and income distribution within and
between countries

Introducing the topic

One of the key roles of an economist can be seen to be to raise people’s living standards.
By helping to improve the performance of firms and advising governments on increasing
macroeconomic performance, economists can make a significant difference to the quality
of people’s lives. Do you think you enjoy a higher living standard than people living in your
country fift y years ago? What would you look at in making this comparison?
 Cambridge IGCSE Economics

Summary
You should know:

■ There are a number of possible indicators of living standards, including consumer goods per head, real
GDP per head, HDI, and the Genuine Progress Indicator.
■ Real GDP per head gives an indication of material living standards, but a rise in average income does
not translate into a benefit for everyone. The extra output may not add to the quality of people’s lives.
Official figures may not capture the total income and may fail to include other factors – like working
conditions, working hours and environmental conditions, which affect living standards.
■ One country can have a higher real GDP per head than another, but its citizens may still have lower
living standards, if they have less leisure time, worse working conditions, lower quality products, worse
environmental conditions and a smaller informal economy.
■ International comparisons in real GDP per head are usually made in terms of purchasing power parity.
■ The Human Development Index is based on life expectancy and education, as well as GDP per head.
■ Some households are rich because they earn high incomes and own assets which generate income.
■ The main reasons accounting for why some people are wealthy are inheritance of wealth, accumulated
savings or money earned in business.

Multiple choice questions

296 1 What is the most popular measure of the difference in living standards between
countries?
A Average price level
B Real gross domestic product per head
C The size of the population
D The value of the currency

2 What is most likely to cause an increase in a country’s standard of living?

A A fall in the school leaving age
B A fall in the size of the labour force
C A rise in the level of pollution
D A rise in the number of doctors per head of the population

3 Under which circumstance would the standard of living of a country be most likely to fall?
A A fall of 3% in real GDP and a fall of 6% in population
B No change in real GDP and a fall of 3% in population
C A rise of 2% in real GDP and no change in population
D A rise of 5% in real GDP and a rise of 8% in population
 Chapter 33
298
Poverty
Learning objectives
By the end of this chapter you will be able to:
■ distinguish between absolute poverty and relative poverty
■ analyse the causes of poverty
■ discuss the policies to alleviate poverty and redistribute income
■ measuring poverty

Introducing the topic

No one wants to be poor. We all want to have sufficient income to enable us to enjoy a good
standard of living. So why are some people poor? Why do some people have so little, while
other people have so much? Is there anything governments can do, to help the poor and
redistribute from the rich to the poor?
 Cambridge IGCSE Economics

Government policies on the distribution of income and wealth

Governments may decide to influence the distribution of income and wealth because of
concerns that a very uneven distribution may be socially divisive. It may also want to ensure
that everyone has access to a certain standard of living. In influencing the distribution,
however, governments may be concerned that it does not reduce incentives to entrepreneurs
and workers.
Governments can influence the distribution in a number of ways including:
• taxation
• the provision of cash benefits
• the provision of free state education and healthcare, and
• using labour and macroeconomic policies.
Progressive taxes make the distribution of income and wealth more even. The provision of
unemployment and other cash benefits can help maintain a reasonable standard of living.
Provision of free state education and healthcare can ensure that everyone has access to
these essential services, and it may also offer the people an opportunity to improve their
living standards. Other government policies that can affect distribution of income include
minimum wage legislation, regional policy and measures to reduce unemployment.

TIP
Remember the difference between equity and equality. An equal distribution of income or wealth
might be seen as unfair, if people have different needs.
302

Summary
You should know:
■ Poverty is measured both in absolute and relative terms.
■ The main reasons that account for poverty of people are unemployment and low-paid jobs.
■ Among the measures a government may take to reduce poverty and raise living standards include
improving education and training, raising aggregate demand, attracting multinational companies and
improving healthcare.
■ Governments influence the distribution of income and wealth through taxation, the provision of
benefits and adoption of macroeconomic policies.
 Chapter 34
304
Population
Learning objectives
By the end of this chapter you will be able to:
■ describe the factors that affect population growth
■ analyse the reasons for different rates of population growth in different countries
■ discuss the effects of changes in the size and structure of population on different countries

Introducing the topic

In 2017 the world population was 7.5 billion. It is predicted that it will increase to 9.7 billion
by 2050 and to 11.2 billion by 2100. The number of people aged 60, or above, is expected to
double by 2050 and more than triple by 2100.
Individual countries are facing a number of challenges connected with changes in the
size and structure of their populations. For example, Japan is experiencing a decline in
population, while Uganda is experiencing a rapid increase in population. The average age
of population varies considerably between countries. For example, it is 52 years in Monaco,
while it is only 15 years in Niger.
 Chapter 34: Population

Summary
You should know:

■ A country’s population can grow as a result of its birth rate exceeding its death rate and/or as a result of
net immigration.
■ The birth rate is influenced by the average age of the population, the number of women in the
population and the number of children they have.
■ The age distribution of a population can be illustrated in a population pyramid. The higher the birth rate
and death rate, the more pyramid-shaped it will be.
■ The death rate is influenced by social conditions, lifestyles, medical conditions and the existence or
absence of military conflicts.
■ People emigrate in search of better living standards and to escape persecution.
■ A country is said to be over-populated, if there is an excess of labour relative to land, capital and
technical knowledge.
■ The effect of an increasing population will depend on its cause, size of the population in relation to the
optimum population and the rate of population growth.
■ An increase in the size of the population may increase the efficiency of firms, raise factor mobility,
increase the demand and make better use of resources.
■ A government may be concerned that an increasing population may result in famine, reduced living
standards, overcrowding, depletion of resources, environmental problems and an unfavourable balance
of payments position.
■ Ways of controlling the population include raising the educational and employment opportunities
for women, increasing availability of family planning services, increasing the cost of having children, 313
providing support for the elderly and providing incentives for limiting the family size.
■ An ageing population will raise the dependency ratio, change the labour force, burden the health and
welfare services, raise the cost of pensions and alter the pattern of demand.
■ Among the possible policies that can be used to cope with an ageing population are raising the
retirement age, promoting workers to save for their pensions, raising productivity and encouraging
immigration of skilled workers.
■ Internal migration from rural to urban areas may make it easier for firms to recruit labour but may lead
to farms losing their most productive workers. Some of those who move to urban areas may not find
jobs and this leads to overcrowding in cities.
■ Net emigration is likely to reduce the size of the labour force, increase the dependency ratio, alter sex
distribution, reduce the size of the population and increase money sent home.
Chapter 35
Differences in economic development
between countries 315
315

Learning objectives
By the end of this chapter you will be able to:
■ describe the nature of economic development
■ discuss the causes of differences in economic development between countries
■ discuss the impacts of differences in economic development between countries

Introducing the topic

Over time most economies develop, allowing poverty to fall, living standards to rise
and people to have more choices. For example, between 1980 and 2015 the average life
expectancy in Thailand rose from 65 to 75, the infant mortality fell from 47 per 1000 births
to 9 per 1000, and the percentage of households with a TV rose from 21% to 93%. What
causes countries to develop? Why do countries have different rates and levels of economic
development?
 Chapter 35: Differences in economic development between countries

How the economic development in one country can promote

economic development in another country
In an increasingly global market, the events in one economy have a greater impact on other
economies. For instance, a buoyant UK economy would be likely to benefit Tanzania, while
an improvement in the Tanzanian economy should bring some advantages to the UK. If the
UK economy grows, the UK government will receive more tax revenue and this will enable
it to increase its foreign aid, some of which may go to Tanzania. Incomes will be higher in
the UK and its people and firms may buy more imports from Tanzania, including more UK
people going on holiday to Tanzania. UK firms are likely to earn higher profits and this may
encourage some of them to set up units abroad, especially if the UK economy is reaching full
capacity.
The UK economy may also develop as a result of an improvement in education. A more
educated UK population may be more concerned and interested in the dynamics of other
economies. This may result in pressure on the UK government to give more foreign aid to
Tanzania and more UK citizens visiting Tanzania as tourists.
The development of the Tanzanian economy can also benefit the UK. A more developed
Tanzanian economy will need less aid, be able to buy more products from the UK and invest
more in the UK.

Summary
You should know:
323
■ Economic development is concerned with improvements in economic welfare. It involves higher real
GDP per head, higher living standards, a wider range of choices, more freedom and more self-esteem.
■ Economic development can be measured in terms of real GDP per head, although HDI gives a wider
measure of development.
■ Among the usual characteristics of countries with relatively low economic development are low real
GDP per head, low savings ratio, low life expectancy, high rate of population growth, low levels of
education, healthcare and investment, a relatively high number of workers employed in the primary
sector and concentration on a narrow range of exports.
■ Countries with relatively low economic development may experience a vicious circle of poverty that is
difficult to break out of.
■ Economic development can introduce a range of benefits to people and enhance a country’s ability to
develop in the future.
■ Countries with low economic development may face a number of problems including population
pressures, international debt, reliance on primary products, lack of investment in human capital and
capital goods, emigration of key workers, trade restrictions on their products and unbalanced
economies.
■ Measures to promote development include import substitution, export promotion, attracting MNCs and
applying for foreign aid.
■ Foreign aid is more likely to promote economic development if it is multilateral, untied and takes into
account the needs and economic conditions of the recipient.
■ An improvement in the development of one economy can benefit another, through increased demand
for its products, increased investment and, wherever appropriate, increased aid.