Gross Domestic Product or GDP is the total market value of all final goods and services produced within a country in a given year (investorwords, 2008). It has four components – consumption, investment, government purchases, and net export. Consumption is the spending of households in goods and services. Investment is the spending on capital equipment, inventories, and structures. Government purchases include spending on goods and services by local, state, and federal government. Net export is the spending on domestically produced goods by foreigners (export) minus spending on foreign goods by domestic residents (import).
(investorwords, 2008) The GDPs of India and Israel are $510 billion and $103 billion, respectively. Dividing GDP by the countries’ total population of 1,050. 75 million for India (worldbank 2008) and 10, 269. 54 million for Israel (worldbank 2008), GDP per capita in both countries is $485. 4 for India and $10 029. 67 for Israel. Income per capita is often used to measure a country’s standard of living (investorglossary, 2008). However, with income per capita, the differences between rich and poor is undetermined, for it is the average income for each person a particular group.
It does not say anything about the distribution of income within the country. It does not specify how poor the poor are and how rich the rich are. This can be seen if we look at countries’ Gini coefficient, which measures disparity in incomes within a country. This is measured by taking the difference of the lowest 20% from the highest 20%. For India, the difference between top 20 percent of the population and the bottom 20 percent is 37. 2% (worldbank 2007) of all assets while for Israel, it is 39. 2% (worldbank 2007). This means that there is greater disparity among incomes in Israel than India.
This should be taken into consideration when talking about measures of standards of living, Even after accounting for the difference between the distribution of income per capita of India and Israel, what can be bought with those average incomes is one of the factors that will determine which country is better off than the other. The price of a certain product could be lower in India than in Israel depending on their purchasing power parity. Purchasing power parity (PPP) means that the exchange rate between two countries should equal the ratio of the two countries’ price level of a fixed basket of goods and services (Antweiler, 2007).
GDP figures are produced by each country and the efficient production of these statistics arises from country to country. However, there is no available information that we can use to infer on the accuracy of GDP figures for India and Israel. Scholars have argued that GDP is not the best measure of welfare of people in a country because it fails to account for differences in length of life, quality of health, freedom and state of environmental degradation. As suggested by the many writings of Sen(Nussbaum and Sen, 1993 and1999), development as measured by income is only a means to happiness and thus should not be the end goal.
From these debates, the human development index was born. The human development index accounts for GDP and these other measures by giving weights on a plethora of human development-related statistics. In summary, advantages and disadvantages of using GDP as a measure of welfare are comparable because of the indicator used is uniform in terms of dollar and incomparable because it lacks difference between rich and poor, and purchasing power parity, respectively. If international comparisons are to be made between countries about standards of living, these need to be taken into consideration.
Essay 2: Wal-mart imports the majority of the product it sells – including much of its food – from overseas, particularly China because the cost of production in this country is much lower than American-made products, and the production in China is poorly regulated. Wal-mart estimates that it imports $15 billion of Chinese products every year and concedes that this figure could be doubled. Company executives are quick to point out they have always scoured the globe for low-cost suppliers to benefit the American consumer (Friedmann 2005).
Thinking about how global economy works, it is unimaginable that retail chains like Wal-mart is actually forcing some of their U. S. suppliers like Kentucky Derby Hosiery, a sock manufacturer, to move their American plants to China and Asia if they want their companies to survive because the lowest-cost of labor can be found in Asia. (Smith, 2008) In the short-run, effect of the movements of these manufacturing companies, pressures from Wal-mart had caused both positive and negative costs to American jobs.
Manufacturers gain enormous profits due to the lower costs of the factors that affect the production function of their company like labor. However, high unemployment rate in the short-run results and as unemployment increases, goods and services of the U. S. economy would shift to the left making the quantity demanded and the price to decrease. In the long-run, there is no effect because of International Division of Labor (IDL), alternative jobs will result like managing the supermarket chain or business process outsourcing.
IDL is the division of production into different tasks performed by different people in different parts of the world and is linked by trade or transnational business organizations. Although the production processes under IDL have different degrees of control, different levels of knowledge and expertise. Suppliers of Wal-mart have overcome these things by teaching East Asians how to design and manufacture products for American consumers, creating their own house brands in league with Chinese and Asian producers (Friedmann 2005).
After the movement of the American manufacturers to Asia, Americans would be able to find alternative jobs in some other private companies or government agencies offering IT, managerial and other jobs. Wal-mart has an overpowering control over purchasing power in the U. S. economy that shutting down all of its stores could cripple 20 to 80 percent production of many large companies who are dependent on Wal-mart. (Smith, 2008) Undeniably, Wal-mart is famous for its low prices making consumers forget everything else except low prices that often come to at a high cost.
E. coli-tainted meat, melamine in dog food, lead-coated paint in children’s toys and cribs that kill infants in their sleep are just some of their dangerous cheap products. In sum, competitiveness in the market and the demand of people for low prices are some of the factors that urged Wal-mart to import their products from China and Asia. However, it has several implications: high unemployment and negative impacts on products that can make any consumer think which is better: the low cost of high cost or the high cost of low cost.