Thursday, April 26, 2007

GOOD LUCKKKK with your surgery :)

GDP & Disposable Income

FMCG may have to move to slow track as disposable income dips
Click here for article :)

This article states that despite the high annual growth of GDP of 11.2%, per capita disposable income is growing at a much slower rate of 7.7%. In other words, a smaller and smaller portion of the GDP is "going into the hands of consumers" as disposable income. GDP is equal to C +I+G+Xn, or Consumption + Investment + Government Spending + Net Exports (note:: consumption is directly related to disposable income). Therefore, because disposable income is becoming a smaller percent of GDP each year despite the rapid growth of GDP, the extra GDP must be going towards something else. This article claims that "
with each passing year, the corporate sector and the government are appropriating a larger share of the national economic pie. " This decrease in what is known as the private final consumption expenditure (PFCE), has led to a dramatic decrease in the expenditure of consumers on essential products including food, clothing, footwear, and personal care products. This decrease in the demand of "Fast Moving Consumer Goods" will lead to a new lower equilibrium quantity of these goods.

Disposable Income in China

China urban per capita disposable income up 19.5 pct, rural up 15.2 pct - stats
According to this article, the per capita disposable income of China's urban and rural residents "rose 19.5 pct and 15.2 pct year-on-year, respectively". Disposable income is referred to as any income a household receives after paying taxes, and can therefore either be consumed or saved (DI=C+S). Disposable income and consumption share a direct relationship; as disposable income increases, consumption increases as well. A change in disposable income (in this case, an increase) therefore leads to a movement along the Consumption curve. Thus, according to this article, consumption in China will likely increase as a result of the increased disposable income. Because DI is equal to C+S, saving will also increase as disposable income increases.

Woohoo:)

Wednesday, April 4, 2007

Shortcomings of GDP Homework =)

Why Do We Neglect Leisure and Cheer for Divorce?

1. The CIA uses GDP as an indicator of economic activity in countries around the world. The GDP is a monetary measure of the total market value of all the final goods and services produced within a country in one year. It is therefore useful in determining economic growth within a country. However, it is important to note that the GDP is not a good representation of the well-being of society. This is due to the fact that many goods and services as well as many of the true joys of life are ignored in the GDP of a country. First of all, the value of leisure is not accounted for in a country's GDP. This causes a problem because, for example, a man working a 50 hour week may be contributing more to the country's GDP than a man working a, say, 30 hour week. Therefore, a nation with 30-hour work weeks may have a GDP far lower than the nation with a 50-hour work week, while the inhabitants of the nation with the 30-hour work week would most probably be much happier than those working for the other nation. Secondly, because GDP is quantitative rather than qualitative, improved product quality is not taken into account in the GDP. A computer now may be the same price as a computer 10 years ago; however, the quality of the computer is most definitely much higher. Third of all, the underground economy, which includes gamblers, drug dealers, tips received by waiters, and money-less transactions ie bartering, are left out of the GDP. Fourth of all, the negative by-products of production such as pollution reduce our economic well-being but are not deducted from total output, causing GDP to overstate national well-being. Another shortcoming of GDP is the fact that it fails to show the distribution or the composition of output. For example, 90% of output may be going to only 10% of households. Also, GDP assigns equal weight to any products as long as they sell for the same price. Therefore, whether producing guns or textbooks, the GDP is equal while society's well-being most definitely is not. In using the GDP as a determinant of a nation's well-being, it is therefore necessary to be careful.

2. Because prostitution, gambling, and some types of drug use are legal in some countries and illegal in others, comparing these countries' GDP would not be accurate, for the underground market of economies account for approximately 10% of total GDP (but are not included). Therefore, the countries in which these actions are illegal, the GDP would be relatively lower than those where the actions are legal and therefore included in the country's GDP.

3. Lance Armstrong's largest contribution to the GDP was made in 1996, for he spent $60,000 dollars on surgery and chemotherapy. This, however, is the same year he had the lowest level of individual welfare (because he had cancer). This clearly shows that GDP is not accurate in measuring the well-being of society. He probably had the highest level of individual welfare the first year he won the Tour de France again, in 1999. Although higher income may lead to more happiness, higher GDP does not necessarily mean that society is better off.

4. a. Lance Armstrong's winnings in the Tour de France: in
b. the used toboggan you bought on eBay: out
c. the Whopper you bought for lunch: in
d. the massage you bought for your dad for Father's Day: in
e. the Monet painting you bought your mother for Mother's Day: in
f. the coffee beans that Starbucks roasted in December but didn't' sell until the following year: out

5. It is extremely difficult to include leisure time in a measure of social welfare, due to the fact that it is impossible to place an exact value on the happiness one receives from this leisure time. Current Social Welfare measures omit the value of leisure time because of this, and the only way for this value to be included would be to place measurable values on happiness; which...isn't really possible.