Question

More people in high-income countries than in lowincome countries tend to believe that rapid rates of economic growth are not desirable. Recall the concept of a "normal good" (see Chapter 3). Does this concept provide insight into why some people in high-income countries might be more concerned with certain consequences of rapid economic growth than are people in low-income countries?

Short answer

Yes, the concept of 'normal good' provides insight into why people in high-income countries might be more concerned with certain consequences of rapid economic growth than people in low-income countries. People in high-income countries may view non-material aspects like environmental quality as 'normal goods' and hence, may not desire rapid economic growth that could potentially harm these 'goods'. Conversely, people in low-income countries, for whom basic material goods are 'normal goods', might desire rapid economic growth to increase their consumption of these goods

Step-by-step solution

- Understand the Concept of 'Normal Good'

A 'normal good' is a good that sees an increase in its demand as the income of individuals increase.

- Relate 'Normal Good' Concept to High-Income Countries

In high-income countries, people's basic needs are generally met due to higher incomes. Therefore, they may consider aspects like clean environment, social equality, and other non-material gains as 'normal goods'. Their demand for these non-material 'goods' increases with their income.

- Relate 'Normal Good' Concept to Low-Income Countries

In contrast, people in low-income countries often struggle to satisfy their basic needs. Thus, they may consider actual material goods as 'normal goods' and would desire rapid economic growth to increase their incomes.

- Conclude by Linking Economic Growth Desirability to 'Normal Good'

Since people in high-income countries value non-material 'goods' more, they might not desire a rapid rate of economic growth due to its potential negative effects on these non-material 'goods'. However, people in low-income countries desire rapid economic growth because it may result in increased consumption of actual goods, which are their 'normal goods'

Key concepts

Economic Growth

Economic growth refers to the increase in the production and consumption of goods and services in an economy over time. It is often measured by the rise in Gross Domestic Product (GDP). Economic growth is generally seen as a positive development, leading to better employment opportunities and higher living standards. However, it's important to recognize that not all growth is created equal.

• In high-income countries, growth can sometimes come at the cost of environmental health and social equality.
• For low-income countries, economic growth is essential for meeting basic needs and improving infrastructure.

The paradox is that while higher economic growth might meet urgent needs in lower-income regions, it might bring about concerns in wealthier areas about how sustainable it is and the impact on non-material qualities of life.

Income Disparity

Income disparity, or income inequality, refers to the unequal distribution of income among the population. This can significantly affect how different groups perceive the desirability of economic growth. In high-income countries, where income disparity is noticeable, the wealthy might prioritize maintaining or improving non-material goods, like clean air and social mobility, over sheer economic growth.

• In low-income regions, people may seek economic growth to close the income gap by increasing their purchasing power for essential goods.
• Income disparity can lead to tensions about resource allocation and societal priorities.

Addressing income disparity is essential for ensuring that economic growth benefits all segments of the population equally, fostering a balanced approach to development.

Consumer Preferences

Consumer preferences drive demand in the market, and these preferences often shift with increases in income. In high-income countries, consumers might prefer non-material goods, which include services, experiences, and environmental quality. These are preferred when basic material needs are already satisfied.

• Preferences in high-income areas might lean towards sustainable products, reflecting a prioritization of lifestyle quality over quantity.
• Conversely, consumers in low-income countries often prioritize material goods, which are essential and urgent, affecting their basic standards of living.

Understanding consumer preferences is crucial for businesses and governments to address the needs and desires of different economic segments effectively.

Material and Non-Material Goods

Material goods refer to tangible items that satisfy basic human needs, like food, clothing, and shelter. In contrast, non-material goods encompass elements that enhance our quality of life but are intangible, such as a clean environment, leisure time, and social equality.

• In high-income countries, there is often a shift in demand from material to non-material goods as basic needs are met.
• For low-income countries, the focus remains on acquiring material goods to achieve a stable standard of living.

This distinction helps explain the varied priorities seen globally, where high-income populations may advocate for policies that preserve non-material goods, while low-income populations push for policies enabling access to more material goods.