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Bangladesh is one of the rapidly developing nations with good growth prospects. The country has a great economic potential because of its vast resources. The country has large reserves of natural gas, timber, arable land and, coal. On the other hand, coal production has not been fully commercialized.
Its exports jumped by 31% in the first quarter of 2010 (Bangladesh Bureau of Statistics, 2010, p. 9). This means that trade can still be increased in both frontiers. In 2008, it was ranked position 48 as one of the world’s largest economies. Its economy has been growing by between 6-7% over the past few years (Bangladesh Bureau of Statistics, 2010, p. 3).
The county is currently having a GDP growth rate of 5.9%. More than half of the country’s GDP is controlled by the service sector. In addition, nearly half of the population is employed in the agricultural sector. On the other hand, it has an unemployment rate of 37 % (Bangladesh bureau of statistics, 2010, p.17).
The county has a lot of endowments in human resource, abundant water, rich agricultural land and massive reserves of natural gas (Gillan, 2002, p. 12). Although the county’s agricultural sector has been improving, it heavily relies on an erratic monsoonal cycle. Agricultural production has also been slowed down by massive flooding. On the other hand, there is a rapidly growing labor force and inadequate port facilities.
Food insecurity and inflation are major concerns that need to be looked at for sustainability. The county has had an inflation rate of 12.3% as from April 2010. (Bangladesh Bureau of Statistics, 2010, p. 14) Economic growth has not been inclusive in recent years and this is a major challenge that needs to be addressed.
For instance most hilly regions in the northeast and south east are more developed than other. In addition, majority of the population lives in underdeveloped rural areas. There is a huge population that has not been well utilized (Gillan, 2002, p. 17). This can be explained from the high unemployment rate.
On the other hand, infrastructure development and investments have been lagging behind. It is undeniable that most of the country’s areas don’t have adequate power supply. These are some of the issues that need to be dealt with as the country faces up to the issue of scarcity and choice.
The basic economic problem that needs to be looked at is scarcity and choice. This is because there is a limited use of resources. It is necessary to effectively use these resources for enhanced economic growth (Chacholiades, 1986, p. 10). The country’s economy is faced with an unlimited production of goods and services.
It is obvious that all societies face the problem of deciding on the best economic approaches (Gillespie, 2007, p. 9). This means that there is need to decide on what goods to produce, how best to produce and who will receive them.
Because of scarcity, it is necessary to make right choices that will lead to a good trade off on the best approach (Shephard, 1970, p. 13). Bangladesh has a great growth potential that needs to be capitalized on for the well being of its people. This is why the country needs good choices in resource allocation to enhance production.
For instance, coal mining is supposed to be enhanced to increases foreign reserves. Since the country has been having a growth rate of 6-7%, there is need to maintain this momentum (Bangladesh bureau of statistics, 2010, p. 5).
This will be done by expanding the country’s overall production to increase wealth. Tax exemptions can be used to encourage production and on the other hand reduce taxation on incomes to increase consumer spending that will support high production activities. It implies that there is need to widen the types of production and thereby promote equitable distribution of wealth (Thompson, 1981, p. 8).
On the other hand, social services are also supposed to be enhanced. This could be due to the fact that the country does not have good science and technology mechanisms to expand education in this sector. As much as these are achievable, there are various challenges that need addressing. Bangladesh has a lot of natural resources like gas and coal but it lacks funds to entice this industry.
There is a poor infrastructure framework which has discouraged investments. On the other hand, the country has a poor investment climate and framework. This can be explained from the long bureaucratic process that an investor has to go through before setting up a business in the county.
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Its large population has not been utilized well (Gillan, 2002, p. 18). It is estimated that the county has a population of between 150-164 million people. Although the country has a vibrant agricultural sector it is not well funded to increase its potential. Funding is mostly concentrated to rice farming. Accessibility to credit is still a big problem that needs urgent action. Banks have lending rates of 13% and this is very high for citizens as it will discourage people from taking loans (Bangladesh bureau of statistics, 2010, p. 21)
The country therefore needs good policies to increase production in all sectors of the economy. Aggregate demand needs to be stimulated to support increased production activities (Heathfield, 1971, p. 13). There is need to increase labor and capital as per the production function. Capital will be increased in investment activities that will absorb a large labor force and in the process increase output (Ferguson, 1972, p. 15).
Increased output will be distributed to the entire economy through infrastructure development (Quirk, 1987, p. 12). Other social services will also be developed by allocating more funds for their enhancement. This will include: the education sector, health services and water (Boland, 2008, p. 9). The education sector is currently underfunded and needs good reforms to move forward. For instance if labor and capital are increased by 20%, output will also increase by 20%.Capital will be guaranteed by enhancing accessibility to credit.
L + K = O
The economy needs to settle on a good production possibility frontier position (Burke, 1990, p. 23). There is need to increase the productivity of factors of production for sustainability. To achieve this, technology will be enhanced to support an increase in factors of production (Boland, 2008, p. 19). This means that a lot of funds will be put ion research and innovation. In the long run, the economy’s ability to produce goods and services will be enhanced.
Source: Boland, 2008.
The county needs to move outwards on the production possibility frontier. This can be achieved by increasing and making factors of production cheap. In this case, technology will be critical in enhancing production. Any outward shift on the production possibility frontier will allow the economy to operate in full capacity (Boland, 2008, p. 19).
This is because Bangladesh’s actual economic growth has not reached its expected potential. The economy is currently operating below its expected production possibility frontier. This implies that labor and capital are still underutilized.
The stock and quality of human resource will be an important asset as far as growth is concerned (Quirk, 1987, p. 18). In addition, Bangladesh faces high risks because of climate and environmental changes that might slow down production.
In this case, it is necessary to come up with good mitigation measures that will ensure that the country is not affected by any climate and environmental disasters (Gillan, 2002, p. 28).
The country should transform its bureaucratic structures to speed up decision making that will improve its governance. This is the only way that investors will be encouraged to invest in the country. As much as all this will be done, economic growth should be inclusive.
Because of scarcity, it is necessary to make right choices that will lead to a good trade off on the best economic policy approach. It is undeniable that Bangladesh has a great growth potential that needs to be capitalized on for the well being of its people. This is why the county needs good choices in resource allocation to enhance production. Since the country has been having a growth rate of 6-7%, there is need to maintain this momentum. This will be done by expanding the country’s overall production to increase wealth.
Bangladesh Bureau of Statistics. (2010). BBS publication. Retrieved from http://www.bbs.gov.bd/
Boland, L, A. (2008). Assumptions controversy. Princeton NJ: Princeton University Press.
Burke, E. (1990). Thoughts and Details on Scarcity. Indianapolis, IN: Liberty Fund, Inc.
Chacholiades, M. (1986). Microeconomics. New York: Macmillan
Ferguson, C. E. (1972). Microeconomic Theory. Homewood, Illinois: Richard D. Irwin, Inc
Gillan, A.2002. From Bangladesh to Brick Lane. UK: The Guardian.
Gillespie, A. (2007). Foundations of Economics. London: Oxford University Press.
Heathfield, D. F. (1971). Production Functions. New York: Macmillan Press.
Quirk, J. (1987). Qualitative economics. New York: Macmillan Press
Shephard, R (1970). Theory of cost and production functions. Princeton NJ: Princeton University Press.
Thompson, A. (1981). Economics of the firm, Theory and practice. Englewood Cliffs: Prentice Hall.