What is the World Bank?
-International financial institution providing loans to the governments of developing countries
-Loan strategy is influenced by SDGs
What is the „economic freedom index“?
-Index ranking of economic freedom and policies of all sovereign countries
-Assesses factors such as trade, investment, property rights, and government intervention and evaluates their impact on economic growth and prosperity
-Four dimensions: Rule of law, government size, regulatory efficiency, and open markets
What is the „Human Development Index“?
-Ranking the overall human development of all countries
-Compresses information from the life expectancy index, the education index, and the GNI index
-Measured by the United Nations Development Programme
What types of ODA are there?
Financial assistance
(Soft loans granted by the government)
Technical assistance
(Donor country delivers goods or services, usually as part of a project)
Other development assistance
(Emergency aid or educational assistance by NGOs)
Why do we need purchasing power parity (PPP) when we compare income or consumption between countries?
How can we identify PPP?
-To compare income in a common currency (dollar)
-Comparison of the same basket of goods in every country
-PPP rates are defined so that the same basket of goods in any two countries has the same dollar value
-Non-tradeable goods are also taken into account (services)
->Tend to be cheaper in developing countries because they are tied to local wages
Why do fertility rates decline as countries become wealthier?
-The opportunity cost of having children increases for women with economic development
-Children aren’t needed as a retirement provision
-Quality-quantity trade-off
(At higher levels of development parents tend to invest more time and money in each child)
Why does economic growth not necessarily lead to more equally distributed income?
-People in rural areas may not participate in growth
-Wealthy people invest in the economy and profit more from growth
Why is there still poverty despite economic growth in developing countries?
-Economic growth -> Increase in GDP
-A country can get poorer despite a growing GDP
-For example due to debt or resource depletion (Erschöpfung)
-If the population growth is higher than the GDP growth, the income per capita decreases
-Inequality (Low wages and high profits)
-Unequal distribution of new wealth (rural areas)
Briefly explain why certain countries trade with each other
-> Give two arguments
USA - Ireland -> Language
Belgium - Netherlands -> Geography
Germany - Spain -> EU/ Reduced trade barriers
Causes of market failure are…
Externalities
• Definition: Externalities occur when a third party is affected by a transaction they are not directly involved in.
Negative externalities:
• The cost to society exceeds the private cost (e.g., air pollution).
• Result: Market overproduces and charges a price that is too low.
Positive externalities:
• The benefit to society exceeds the private benefit (e.g., education).
• Result: Market under-consumes and charges a price that is too high.
Do we always need Goverment interventions to overcome market failure?
Yes or No?
Answer: No.
Explanation (using the Coase Theorem):
The Coase Theorem states that if property rights are well-defined and transaction costs are low, private parties can negotiate to resolve externalities and achieve an efficient outcome without government intervention.
For example, a factory causing pollution can negotiate with affected residents to reach a mutually beneficial agreement. However, when transaction costs are high or property rights are unclear, government intervention may still be necessary.
Explain MPC, MPB, MEC, MSC, MEB and MSB:
MPC: Marginal Private Cost -> Cost of producing an additional unit
MPB: Marginal Private Benefit -> Benefit of consuming an additional unit
MEC: Marginal External Cost -> Cost of producing an additional unit that falls on someone else but the producer
MEB: Marginal External Benefit -> Benefit of consuming an additional unit that falls on someone but the producer
MSC: Marginal Social Cost -> (MPC+MEC)
MSB: Marginal Social Benefit -> (MEB + MPB)
Explain how the land use trilemma works
-Land needs to be used in a way to battle three crises
Food Security Crisis
Climate Change Crisis
Biodiversity Loss Crisis
-Usually, land is occupied to battle one of the challenges, but since land is limited it has to be used to tackle all three
->Integrated land management
Garrett Hardin became famous for which theory?
The tragedy of the commons:
-If everyone has access to a common good it tends to get overused
->Unsustainable rate of use
-Everyone tries to benefit as much as possible
-Degradation with high cost to the society
How can digitalization be used to support/ harm the agenda of 2030?
2030 Agenda for Sustainable Development
Positive:
-eHealth
-Big data
-Blockchain technologies
Negative:
-High cost of telecommunication
-Danger of data sovereignty
-Gaming disorder
-More electronic waste
How can you battle the land use trilemma?
-Multiple-Benefit-Strategies (MBS) can be used to battle all crises at the same time
MBS 1 - Ecosystem Restoration
-Restoration of degraded land ecosystems
-Rewetting and restoring peatlands (Moore) (Also helps food security and ecosystems)
MBS 2 - Protected area systems (Secure biodiversity)
-Build an effective and well-connected system of protected areas
-Maintain ecosystem services
-Benefits for food security
MBS 3 - Diversified agriculture
-climate change mitigation
-biodiversity
-degrade soils
MBS 4 - Changing dietary habits
What are point-sources and non-point-sources?
Which one is hard to identify and which one is easy to identify?
Point (single) sources -> Easy to identify
Non-point (multiple) sources -> Hard to control
How can overfishing be prevented?
-Regulations
-Labeling
-Traceability standards
-Reducing fishing subsidies
-Declaration of marine protected areas
How do tradeable pollution permits work?
(Emissionshandel)
The government only allows a certain amount of pollution for every company
Companies can use the certificates to pollute or sell them
Clean Air Act of 1990 (Sulfur-dioxide)
European Union Emissions Trading Scheme (Carbon)
How does a steering tax work?
The goal of the tax is to reduce e.g. pollution by making producers or consumers bear the true cost of their actions.
-Eliminating the difference between Marginal Private Cost and Marginal Social Cost
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