Section 9:Standard of Living

Mr. Jackson
 What does Standard of Living Mean?

The term Standard of Living refers to the quality

of life that the people of a country have. It refers
to the types of house they live in, the quality of
the food they eat, the clothes they wear and so
on.
 Quality of Life
Quality of life refers to the extent
to which a population benefits from
its wealth.
 Factors that Affect SOL
• Size of the Population
• Income
• Inflation
• Government
• Exporting
• Devaluation
 Indicators of a Country Wealth
How can we know how rich or how poor a country is?
By the:
• Level of consumption of goods and services
• Average disposable income of the population
• Level of national ownership of capital equipment
• Access to modern technology
• Level of investment in research and technology
• Life Expectancy of the citizens of the country
• The literacy rate of the citizens of the country
 How to Measure Standard of Living

1. Gross Domestic Product (GDP) – This is a

measure of all the goods or services produced
within a country (locally).
2. Gross National Product (GNP) – This is the
monetary value of all the goods and services
produced in the country as well as goods
produced overseas by citizens of the country.
3. Per capita Income – This shows how much
income is made by a single person in the
population. The formula is:

GNP
Population
 Economic Growth
Economic Growth refers to an all round
expansion of the economy. It is concerned with
an increase in the productive capacity of the
economy.
 Economic Development
Economic development refers to the provision of
facilities that enable growth to take place. It is
the reduction of poverty and the removal of
inequalities in the distribution of wealth and
income. In other words Development is the
process of improving the quality of life of the
citizens of a country.
Factors That affect Growth & Development

• Rate of investment
• Rate of increase in the working population
• Technical training and education
• Government expenditure
• Migration
 National Income
National income is the total money value of all
goods and services produced by the country over
the period of a year.
 International Trade
Global or international trade is the trade between
or among nations or countries. Eg: Jamaica may
trade with the U.S.A.
 Reasons for International Trade
Every country needs to trade because:
• Some goods we buy cannot be produced in the
Caribbean. (climatic differences)
• Some countries are more advanced in technology and
may be better able to produce a particular
commodity.
• Many goods cannot be produced in the Caribbean
because they require economies of scale which these
countries cannot provide. Eg: car manufacturing.
 Reasons for International Trade
• It promotes growth for the country since there
will be increased employment.
• Quality of goods and services needed maybe seen
as being of higher quality.
• It promotes political connections between
countries.
• To earn foreign exchange to pay for imports, for
example, insulin is a drug prescribed for diabetes
and is not produced locally.
 Comparative Cost Advantage
This principle is based on the assumption that
countries that produce the same goods will
compare their cost of production. Based on these
costs, these countries will decide to produce the
goods that cost them less to produce. For example,
Guyana may find that it can produce rice cheaper
than motor cars, while the USA may find it cheaper
to produce motor cars. Therefore Guyana will
produce rice and export to the USA and visa versa.
 Barriers To International Trade
• Custom Duties/Tariffs – These are taxes or
duties on imports, which are collected by the
government and which raise the price of the
good to the consumer.
• Quotas and Licenses – These are limits on the
amount of a certain types of good that may be
imported into a country. Licenses are permits
to import or export goods.
 Globalization

Globalization may be defined as the system by

which countries of the world interact in order to
develop the world economy, which results in the
integrating of societies internationally.
 Advantages of Globalization

• It leads to efficient use of resources and

tremendous benefits to all involved. There is a
global market for firms and individuals have access
to goods and services of different countries.

• It reduces unemployment , bringing more people

into the workforce which raises standard of living.
• A global market encourages an increase in the
productive sector and gives firms many more
options.

• There is a steady cash flow going to

developing countries which reduces the
differences in currencies.
 Advantages of Globalization

• There is an increase in information between

countries who may not even have common
interests.

• A world power is gradually created where politics

merge and decisions are made in global terms
rather than by individual countries.
• Cultural exchanges leads to an acceptance, and
later adoption of other cultures and
behaviours.

• There is less brain drain as locals are able to

work for foreign companies and earn foreign
exchange for their country while remaining in
their own country.
 Disadvantages of Globalization
• Some workers in developed countries are losing
jobs because firms are outsourcing production to
Asia due to low cost of production which allows
them to make higher profits.

• The job insecurity of workers increases because

of the constant threat of firms outsourcing labour
overseas.
 Disadvantages of Globalization

• There is an increased threat of corporate firms

effecting takeovers, causing more instability in
the market place.

• Developing countries are giving increased

power to foreign firms.
 Balance of Payments
When countries trade with each other, at the end of the
financial period they prepare an account that sets out
their indebtedness to their trading partners. This is called
a Balance of Payments. It is really an account that
analyses a country’s financial transactions with its
trading partners. A balance of payments has three main
sections:
• Current Account
• Capital Account
• Official Financing
 Balance of Payments
Current Account
The current account includes:
a) Visible trade which looks at the import and export of
goods only.
b) Invisible trade which examines the import and export
of services only.
When the amounts paid for visible imports are subtracted
from the amounts paid for visible exports (in goods
only) the figure that is arrived at is called the visible
balance.
 Balance of Payments
When the amounts paid for invisible imports are
subtracted from the amounts paid for invisible
exports (services) the figure derived is referred
to as the invisible balance.
The current account balance is obtained by
adding the balance on the visible trade to the
invisible trade.
 Balance of Payments Deficit

A balance of payments deficit is a shortfall in the

country’s overseas earnings.
 Internal Measures to address Balance of
Payments Problems
• Reduce imports. This may be achieved by physical controls
such as increasing import duties, quotas, bans and
exchange.
• Devaluation of the country’s currency. By reducing the
exchange rate of a country’s currency in relation to foreign
currencies, a country can make its exports more competitive
in world markets and thus expand demand for its exports.
• Borrowing from the International Monetary Fund. (IMF)
• Selling off foreign assets.
• Obtaining loans from abroad.
 Balance of Trade
This is the difference between the value of goods a
country imports and exports.

When exports exceeds imports, the balance or trade gap, is

said to be favourable because a surplus has been created
resulting in a net flow of funds into the country.

When imports exceeds exports, the balance is said to be

adverse (unfavorable). A deficit (loss) has been created
which has resulted in a net outflow of funds.
Economic Problems faced by the Caribbean

• Industrial waste disposal – often companies

engaged in industrial activities do not make
adequate arrangements for handling waste,
such as the red mud from alumina production.
This contributes to serious environmental
degradation.
Economic Problems faced by the Caribbean

• The industrial activities being capital intensive

in nature – this means that more persons will
be unemployed because of the benefits of
modern technology.
• Unemployment – high levels of
unemployment exist in the Caribbean, result
from a number of factors, overpopulation
being a major contributor.
Economic Problems faced by the Caribbean

• Size and Make up of the Population – if the

population comprises a large number of older
people, such as those who may be retiring
soon or those who are already retired, then the
labour force could be too small to support the
level of productive activity to be undertaken.
Economic Problems faced by the Caribbean

• Overpopulation – overpopulation often creates

poverty.
• Migration – migration results in what is called a
‘Brain Drain’, that is, a country loses a portion of
its labour force to the more developed countries.
• Urbanization - this is when people move from
the country to live in cities. This will bring strain
on the towns and fewer people will be involved
in agriculture.
Economic Problems faced by the Caribbean

• Economic Dualism – economic dualism refers to the

situation in which two separate sectors are at work,

one which is advanced in terms of its technological

development, and the other which is backward or

underdeveloped due to lack of modern technological

inputs.
• Additionally, benefits gained by the advanced
sector of the economy do not filter into the
backward sector, and thus do not allow it to
experience growth and make a greater
contribution to the economic life of the
country.
 Possible Solutions to Problems in the
Caribbean
• Establishing clear guidelines on how to dispose
of industrial wastes. Some countries have
already established agencies that serves as
environmental ‘watchdogs’. In Jamaica, the
National Environment and Planning Agency
(NEPA) is assigned the monitoring tasks.
• Encouraging companies to assist in providing
training in modern technological methods and
procedures.
 Possible Solutions to Problems in the
Caribbean
To solve some of the problems of migration, the
government could:
• Put in place proper roads and transportation
systems, and provide adequate facilities, such as
water and electricity, to satisfy the needs of rural
communities.
• Develop incentive programmes that will encourage
people to locate their businesses in the rural parts.
• Create more job opportunities.
 Major Economic Institutions
• CARICOM – CARICOM stands for the Caribbean Community and
Common Market. A common market is made up of a group of
countries which have come together to foster trade among
themselves.
Objectives and Functions or CARICOM
• Foster economic cooperation among member states.
• Coordinate foreign policy.
• Foster cooperation in health, education, culture, and
communication among member states.
• Encourage the use of raw materials of the region by member states.
• Encourage regional trade in agricultural products.