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1. Economizing Resources:
The production possibility curve tells us about the basic fact of human life that the resources available to mankind in
terms of factors, goods, money or time are scarce in relation to wants, and the solution lies in economising these
resources. As aptly put by Samuelson, “Economic scarcity refers to the basic fact of life that there exists only a finite
amount of human and non-human resources, which the best technical knowledge is capable of using to produce only a
limited maximum amount of each and every good, as shown by the Production Possibility Frontier. And thus far, nowhere
on the globe is the supply of goods so plentiful or the tastes so limited that the average man can have more than enough
of everything he might fancy.”
2. Economic Efficiency:
The production possibility curve is also used to explain what Prof. Dorfman calls the “three efficiencies: (i) Efficient
selection of the goods to be produced, (ii) Efficient allocation of resources in the production of these goods and efficient
choice of methods of production, (iii) Efficient allotment of the goods produced among consumers.” These are in fact the
central problems of an economy which are related to what Samuelson calls “what, how and for whom” to produce.
Hence, the basic differences between economic growth and development are explained in the points given below:
Economic growth is the positive change in the real output of the country in a particular span of time economy.
Economic Development involves rise in the level of production in an economy along with the advancement of
technology, improvement in living standards and so on.
Economic growth is one of the feature of economic development.
Economic growth is an automatic process. Unlike economic development, which is the outcome of planned and result
oriented activities.
Economic growth enables an increase in the indicators like GDP, per capita income, etc. On the other hand, economic
development enables improvement in the life expectancy rate, infant mortality rate, literacy rate and poverty rates.
Economic growth can be measured when there is a positive change in the national income, whereas economic
development can be seen when there is an increase in real national income.
Economic growth is a short term process which takes into account yearly growth of the economy. But if we talk about
economic development it is a long term process.
Economic Growth is applicable to developed economies to gauge to the quality of life, but as it is an essential
condition for the development, it applies to developing countries also. In contrast to, economic development is
applicable to developing countries to measure progress.
Economic Growth results in quantitative changes, but economic development brings both quantitative and qualitative
changes.
Economic growth can be measured in a particular period of time. As opposed to economic development is a
continuous process, so it can be seen in the long run.
Example
To understand the two terms economic growth and economic development, we will take an example of a human being.
The term growth of human beings simply means the increase in their height and weight which is purely physical. But if
you talk about human development, it will take into account both the physical and abstract aspects like maturity level,
attitudes, habits, behavior, feelings, intelligence and so on.
In the like manner, growth of an economy can be measured through the increase in its size in the current year in
comparison to previous years, but economic development includes not only physical, but also non-physical aspects that
can only be experienced like improvement in the lifestyle of the inhabitants, increase in individual income, improvement
in technology and infrastructure, etc.
After the above discussion, we can say that economic development is a much bigger concept than economic growth. In
other words, economic development includes economic growth. As the former uses various indicators to judge the
progress in an economy as a whole, the latter uses only specific indicators like gross domestic product, individual income
etc.
II. INVENTION
Invention Is the Mother of Economic Growth
One reason “dismal science” aptly describes economics is that it so often winds up in a zero-sum trade-off of diminishing
returns. That gets depressing when the global economy is in a sorry state, as it is now. But the situation is not as bleak as
it seems. There is a magical engine for economic growth i.e. Invention.It is the process by which the human mind creates
new ideas with practical consequences. Invention is magical because the magnitude of the output can exceed by almost
infinite measure the magnitude of the inputs. A single great idea can generate enormous transformations, economic and
otherwise. Unlike almost all other forms of human economic activity, inventing is not limited by a law of diminishing
returns. It comes with no dismal trade-offs.
Invention and its weaker cousin, innovation, are ultimately the source of all wealth and luxuries. In the age of Kindles and
smartphones, we are surrounded by obviously invented products. But “traditional” society, too, was built by the
Ever since the Industrial Revolution, world demand for power and raw materials has grown at a fantastic rate. One
respected observer estimates that humankind “has consumed more aluminum, copper, iron and steel, phosphate rock,
diamonds, sulfur, coal, oil, natural gas, and even sand and gravel over the past century than over all earlier centuries put
together,” and goes on to write that “the pace continues to accelerate, so that today the world annually produces and
consumes nearly all mineral commodities at record rates”
Are our natural resources truly being gobbled up by an insatiable industrial world? Table 1 presents some estimates of
known world reserves of five important nonfuel minerals (tin, copper, iron ore, lead, and zinc). Clearly, even though the
mining of these minerals between 1950 and 2000 used up much more than the known 1950 reserves, the known supplies
of these minerals were greater in 2000 than in 1950. This increase in presumably finite stocks is explained by the way
data on natural resources are compiled. Each year, the U.S. Geological Survey (USGS) estimates the amounts of reserves:
the quantities of mineral that can be economically extracted or produced at the time of determination (as inTable 1).
Those quantities can and do rise in response to price rises and anticipated increases in demand. As previously discovered
reserves of a resource grow scarce, the price rises, stimulating exploration that frequently adds new reserves faster than
the previously proven reserves run out.
Clearly, data on reserves do not show whether a resource is about to run out. There is, however, another indicator of the
scarcity of a resource that is more reliable: its price. If the demand for a resource is not falling, and if its price is not
distorted by interference such as government intervention or international cartels, then the resource’s price will rise as
its remaining quantity declines. So any price rises can be interpreted as a signal that the resource is getting scarcer. If, on
the other hand, the price of a resource actually falls, consistently and without regulatory interference, it is very unlikely
that its effective stock is growing scarce.
Table 1: World Reserves and Cumulative Production of Selected Minerals: 1950–2000 (millions of metric
tons)
Mineral 1950 Reserves Production 1950–2000 2000 Reserves
Tin 6 11 10
Lead 40 150 64
Sources: National Commission on Supplies and Shortages, 1976; and U.S. Geological
Survey, http://www.usgs.gov.
H. J. Barnett and Chandler Morse (1963) found that the real cost (price) of extraction for a sample of thirteen minerals
had declined for all but two (lead and zinc) between 1870 and 1956. William Baumol et al. (1989) calculated the price of
fifteen resources for the period 1900–1986 and found that until the “energy crises” of the 1970s, there was a negligible
upward trend in the real (inflation-adjusted) prices of coal and natural gas and virtually no increase in the price of crude
oil. Petroleum prices catapulted in the 1970s and 1980s under the influence of the Organization of Petroleum Exporting
Countries (opec). After that, as Figure 1 shows, real oil prices returned to their historical levels, until 2003, when oil prices
increased significantly again. While the longer-term prospects for these prices are uncertain, new energy-producing
techniques such as nuclear fusion, along with the increasing use of renewable energy sources such as wind power, solar
power, and hydrogen fuel cells, may be able at least to offset the upward pressure on energy prices.
Figure 1
Sources: Oil prices: U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2003 and
Petroleum Marketing Monthly, Nov.2004 (http://www.doe.gov); Implicit price deflator, Bureau of Economic Analysis
(http//www.bea.gov).
Note: Prices are crude oil domestic first-purchase prices in constant 2000 dollars, calculated using GDP implicit price
deflators.