Q1.

Many of the least developed countries are caught in circumstances where jointly
profitable investments may not be made without coordination; multiple equilibriums may
exist in which the same individuals with access to the same resources and technologies can
find themselves in either a good or a bad situation. Discuss the reasons and justify with
examples

A condition in which more than one equilibrium exists. These Equilibria are stable (function
crosses the 45º line from above) and Unstable (function crosses the 45º line from below).

There is a need of coordination as jointly profitable investments may not be made without them.
Multiple equilibria may exist due to same resources including technology but in which there is a
lack of coordination.

Countries that are developing such as Pakistan and Africa experience this. This can be due to
political upheaval as a pressure from potential losers. This causes a hurdle in the process of
modernization causing hurdles in shifts.

Modern technology is another factor. This is especially in terms of transfer of technology. The
rate of technology transfer depends on the how much effort each firm is willing to make. It also
has spillovers or externalities for other economic opportunities.

These problems can be fixed by a big push:

Inter-temporal effects, Urbanization effect that allows industrialization and Infrastructure

development.

Training effects- might restrain training workers as they fear rival firms may offer higher wages
to their workers and they will loose trained workers.

Q2. What are the common features of developing countries (10 marks)

Developing countries have features such as

1. Lower levels of living: people from developing countries lack incomes that allow them to
buy goods and services that can help them afford basic necessities of life. These include
basic staple food, and shelter.
2. Crime rate and corruption: There is higher crime rate as certain economies may be stuck
in the developing stage because of an ongoing lack of strength in its law enforcing
agencies and other institutions. This is because such institutions have people who
exercise rent seeking behavior that cause a lack of actual public expenditure. To curb the
problem of poverty, people from the lower classes may commit crimes where hunger is
rife, and unemployment is high.
3. Colonial legacy: these countries from Africa or south east asia also have colonial legacy
from the british
 4. Lower levels of education: these countries also lack good levels of literacy rates
5. High population growth levels: these countries also do not have awareness regarding
family planning and believe increase in family means more income earners.
6. Diverse topography: A factor that causes these countries to fall back from the developed
countries is their diverse topography which either entails barren land, rugged landscape
or a higher altitude area

Q3. Why china was considered one of the most polluted countries in the world and how did
China reduced it some extent. (5 marks)

China is one of the most polluted countries as it was developing. Their biggest sector was the
production or manufacturing sector, and that has contributed significantly in making them an
economic superpower. However, industrial activity had lead china to be one of the most polluted
countries in the world causing cancers and other diseases with the locals.

China has taken an active step to curb this problem by reducing coal consumption. In addition,
they have also closed down polluting mills and factories to switch to more nature friendly
methods of production.

Q4. What is Grameen Bank and what is its contribution to tackling rural poverty? (5
marks)

Grameen Bank is a micro-financing bank that has enabled people from rural areas to curb the
problem of poverty by providing small loans for farmers. This has helped these farmers to get
investments for small scale and medium scale enterprises. This gives capital to provide local
people with employment and has curbed the problem of poverty.

Q5. What is FDI and how it may affect local economy? (5 marks)

FDI is the abbreviation of foreign direct investments that are made by foreign institutions in
another economy. These are the investments that a foreign entity makes by buying foreign assets
that allow another entity to practice personal or vested interests in terms of conducting business
activity. FDI can stimulate local economy, provide employment that increases local’s purchasing
power so that they can buy local goods and services. It can also increase the value of local
currency making imports cheaper. However, FDI also means that vested interests may result
exploitation of local scarce resources.

Q6. Explain the concept of brain drain, how does it affect local economy who witnesses
brain drain. (5 marks)

Brain drain is when the skilled labor force of one country leaves for another economy, usually
through foreign migration. This causes the local economy to lose out on significant skilled labor
force that is needed for local production of goods and services. However, for developing
countries, migration to another developed country means sending back remittances to the local
country.

Q7. Lorenz curve

The working followed by the diagram