Is it correct to say that “Country’s standard of living depends on it’s ability to produce goods and services?” if yes, then how does it results?
Why do economists assert that a country’s standard of living depends on it’s ability to produce goods and services? What is the relationship between productive capabilities of nation and citizens standard of living?
List of basic principles of economics
1.People face trade offs
2.The cost of something is what you give up to get it
3.Rational people think at the margin
4.People responds to incentives
5.Trade can make everyone better off
6.Markets are usually a good way to organize economic activity —The idea of invisible hand
7.Government improves market outcomes.
8.Country’s standard of living depends on it’s ability to produce
9.Prices rise when the government prints too much money.
10.Society faces a short run trade offs between inflation and unemployment.
Our present world is characterized by the huge economic inequalities in terms of per capita income and consumption patterns. Some of the African as well as Asian countries have very poor per capita income.
Inequalities in terms of per capita income and standard of living
For example, nations in Asia such as, Afghanistan, Nepal and Syria have hardly between 1000 dollars to 2000 dollars; Whereas, some nations of developed category have around 50,000 dollars. An average, per capita income as whole world is around 11,000 dollars.
Relations between per capita income and economic growth
As a matter of fact that per capita income of people in any nation is the product of the nature of job opportunity available there. Quality job opportunity is directly responsible for the per capita income of people.
And, the degree of job creation directly depends on the rate of economic activities or growth. More the economic growth, higher the job opportunities and vice-versa.
If we consider the above facts regarding the per capita income of people across world, we can easily conclude that the specific countries have poor rate of developmental activities compare to others. What does it mean? A huge inequality in the income of people across the world.
In simple terms, economic activities, job opportunities and per capita income are absolutely interdependent, and one has strong bearing on the outcomes of others.
How does economic development affect the level of standard of living?
Probably, there are two ways to affect standard of living by the economic development or productive capabilities of given nation.
First, developmental activities are the single source for job creation. And, second, proper supply of commodities in demand depends on the rate of production.
If the economic growth is slower than expections, the possible outcome would be lower jobs and so the per capita income. But, opposite would happen in case of better growth.
In terms of consumption, if there is adequate supply of commodities in demand in given market, the consumers do not need to pay extra dollar for the consumption they aspire. But, when there is undersupply or overdemand in the market in question, the end result would be loss of extra dollar for consumers.
Consumer’s and producer’s surplus
If the production of goods and services in any nation breeding desired results, it means production is rising as per expections, there will be on shortage of goods and services people consume. At the same time, people do not need to run pillar to post in search for jobs.
Simply, if there is adequate supply of production, supply of goods and services, people aspiring do not need to spend extra they saved. In return, they have jobs, more salaries, more variety of goods and services, and more choices. This is why it is claimed that Country’s standard of living depends on its ability to produce goods and services.
Final thought on economics principle regarding standard of living
Finally, the equation is clear that the standards of living is directly correlates with the productive capabilities of goods and services of given nation as it determines the degree of development of people of the nations across the world. More the production, better the supply of goods and jobs. If there is low inflation and higher job creation, there would be better welfare of people.
Economic growth and development
Understanding capital formation