Question

Define the five types of "production effects" of economic growth in a country. Other things equal, if one factor of production in a country (either labor or capital) grows, what are the only two types of production effects that are possible because of the growth in this factor? Briefly explain.

Answer 1

Ans. As the procedure of economic development encourages the expanded supplies of factor contributions, there can be some adjustment in the residential yield of exportable items. The expanded production of exportable merchandise achieves an extension in the volume of exchange. The enormous production of importable merchandise, then again, causes a compression in the volume of exchange. The five types of production effects can be described as follows: neutral, export-biased, ultra-export biased, import-biased and ultra-import biased. In a developing nation, the all out effect of development speaks to the joined consequence of its effects on production and utilization. On the off chance that there is finished specialization in production, the nation doesn't at all produce the importable item and the all out effect of development is resolved totally by the move in utilization balance because of the extension of pay. In such a circumstance, the general effects of development can again be neutral, export- biased, ultra-export biased, import-biased and ultra-import-biased relying on the relative changes in the demand for imports and flexibly of exports. On the off chance that there is deficient specialization, and the given nation produces both the items, the demand for her imports is estimated by the overabundance of all out demand for and the residential gracefully of the concerned product. The complete development effect on the demand for imports is, along these lines, the net effect of the production and utilization effects of the importable ware. This all out effect decides the degree or heading of move in the offer bend of the developing nation. As move happens in the offer bend of the given nation, it gets conceivable to find out its effect on the volume and terms of universal exchange. In the event that both utilization and production effects are neutral, the general development effect in the developing nation, state An, is likewise neutral. Be that as it may, the local gracefully of importable ware being a littler extent of the absolute production than the extent of utilization of imports to the all out utilization, the cost of importable ware is probably going to be moderately higher than previously. Therefore, the terms of exchange are probably going to turn out to be more awful, regardless of neutral generally speaking development.