Chapter 20, Problem 1.1P

To determine

Role of economic growth in an extreme poverty.

Explanation of Solution

There are many people suffering a lot in the situation of extreme poverty. Growth by itself is not enough to improve their life conditions, because, economic growth mainly focus on the allocation of resources for the growth in real GDP. However, a country that faces extreme poverty has to concern a number of areas such as hunger, illiteracy, child mortality, diseases, gender inequality, maternal mortality, environmental protection and so on. Therefore, the allocation of resources is not always enough to manage all the problems of extreme poverty.

When more resources are allocated to economic growth, poverty rates will decline at a particular level. However, after that point, further allocation of resources for the reduction in poverty would become more difficult and has only smaller impact on poverty reduction due to the presence of several problems of extreme poverty. The concept of increasing opportunity cost states that, if resources are already allocated for an activity, smaller will be the pay-off for allocating extra resources to that activity. Therefore, most people likely agree with the given assessment.

Economics Concept Introduction

Concept introduction:

Extreme poverty: Extreme poverty is a situation where people lack basic human needs such as food, clothes, shelter, safe drinking water, sanitation facilities, health, education, and information.