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Ten Principles of Economics - Part 52

Ten Principles of Economics - Part 52. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | IN THIS CHAPTER YOU WILL . . . See how economic growth differs around the world Consider why productivity is the key determinant of a country s standard of living PRODUCTION AND GROWTH When you travel around the world you see tremendous variation in the standard of living. The average person in a rich country such as the United States Japan or Germany has an income more than ten times as high as the average person in a poor country such as India Indonesia or Nigeria. These large differences in income are reflected in large differences in the quality of life. Richer countries have more automobiles more telephones more televisions better nutrition safer housing better health care and longer life expectancy. Even within a country there are large changes in the standard of living over time. In the United States over the past century average income as measured by real GDP per person has grown by about 2 percent per year. Although 2 percent might seem small this rate of growth implies that average income doubles every 35 years. Because of this growth average income today is about eight times as high as average income a century ago. As a result the typical American enjoys much Analyze the factors that determine a country s productivity Examine how a country s policies influence its productivity growth 529 530 PART NINE THE REAL ECONOMY IN THE LONG RUN greater economic prosperity than did his or her parents grandparents and greatgrandparents. Growth rates vary substantially from country to country. In some East Asian countries such as Singapore South Korea and Taiwan average income has risen about 7 percent per year in recent decades. At this rate average income doubles every ten years. These countries have in the length of one generation gone from being among the poorest in the world to being among the richest. By contrast in some African countries such as Chad Ethiopia and Nigeria average income has been stagnant for many years. What explains these diverse experiences .