Economics Answer Note #81

Question 1 Draw and label a graph that depicts a downward-sloping demand curve and an upwardsloping supply curve in the market for pizza sold by Pizza Hut. Refer to your graph to describe how an increase in the minimum wage in California – from $16 to $20 an hour – will affect the equilibrium price and quantity of pizza sold in California. Answer According to the basic principles of supply and demand, an increase in the minimum wage in California, from $16 to $20 an hour, will impact the market for pizza sold by Pizza Hut in the state. In this scenario, there are two key factors to consider - the demand for pizza and the supply of pizza. Graph: Please see attached graph. Question 2 wHy there is a high poverty rate in developing countries? Answer "Why is there a high poverty rate in developing countries?" Poverty in developing countries is a complex issue that has been extensively studied by researchers and scholars. There are multiple interconnected factors that contribute to the high poverty rate in these countries. One of the main reasons is the lack of economic development and low per capita income. Many developing countries have limited resources and face challenges in building a strong and sustainable economy. This results in a large proportion of the population living below the poverty line. Another significant factor is the unequal distribution of wealth and resources. In many developing countries, there is a large income gap between the rich and the poor. The wealth is concentrated in the hands of a few, while the majority of the population struggles to meet their basic needs. This income inequality leads to a cycle of poverty, where the poor are unable to access education, proper healthcare, and job opportunities, making it challenging to break out of poverty. Moreover, lack of access to education and healthcare also contributes to the high poverty rate in developing countries. Without education, individuals are unable to acquire the necessary skills to secure well-paying jobs, perpetuating the cycle of poverty. Additionally, the lack of affordable healthcare means that people are more susceptible to diseases, leading to high medical expenses, which can push families further into poverty. Governments and policymakers must prioritize economic development, promote equal distribution of wealth, and ensure access to education and healthcare to address the high poverty rate in developing countries. It is also crucial for developed countries to provide aid and support in the form of investments and technology transfer to help lift these countries out of poverty. In conclusion, the high poverty rate in developing countries is a complex issue that requires a multifaceted approach to address. By understanding and addressing the root causes, we can work towards reducing poverty and promoting sustainable development in these countries. Question 3 why developing countries have slow progress growth on income per capita? Answer There are multiple factors that contribute to the slow progress growth on income per capita in developing countries. In order to understand this complex issue, we must examine various economic and social factors that influence a country's income per capita. One of the primary reasons for slow progress growth on income per capita in developing countries is lack of access to capital and investment. Developing countries often face challenges in attracting foreign direct investment (FDI) due to political instability, weak institutions, and inadequate infrastructure. This results in limited economic growth and reduced job opportunities, which in turn affects the income per capita. Moreover, developing countries often have a high population growth rate which leads to an increase in the labor force. This results in an oversupply of labor and consequently, lower wages, contributing to slow growth in income per capita. Additionally, developing countries face challenges in developing and maintaining a skilled labor force, which is necessary for economic development. Another crucial factor in slow progress growth on income per capita in developing countries is unequal income distribution. In many developing countries, a significant portion of the population lives in poverty while a small percentage holds a significant amount of wealth. This unequal distribution of income creates a cycle of poverty, hindering economic growth and resulting in a slow growth of income per capita. Furthermore, inadequate infrastructure, such as transportation, communication, and energy, also contributes to slow progress growth in developing countries. Poor infrastructure impacts the cost of doing business, making it difficult for companies to operate efficiently. This results in reduced production and exports, hampering economic growth and income per capita. In conclusion, the slow progress growth on income per capita in developing countries is a multi-faceted issue. It requires addressing several challenges, including access to capital and investment, population growth, unequal income distribution, and inadequate infrastructure. It is crucial for developing countries to implement policies that promote economic growth, attract foreign direct investment, and address income inequality to achieve sustainable progress in income per capita. Question 4 2. Nepal ranked 94 in the ease of doing business index prepared by the WorldBank, indicating that businesses are not thriving in the country. What can be done to improve the situation and motivate the private sector in Agribusiness? Answer Nepal, a small landlocked country in South Asia, has been facing significant challenges in its economic growth and development. One of the key areas of concern is the ease of doing business, particularly for the agribusiness sector. The recent ranking of Nepal at 94 in the World Bank's Ease of Doing Business index clearly highlights the obstacles and barriers that businesses face in Nepal. This is a significant issue, as the agribusiness sector is a vital contributor to Nepal's economy, accounting for nearly a third of the country's GDP and employing a majority of its population. Therefore, it is imperative to address the challenges faced by the agribusiness sector and devise strategies to improve the situation and motivate the private sector to invest in this crucial sector. To understand the challenges faced by agribusiness in Nepal, it is essential to examine the current state of the sector. According to the World Bank's Doing Business report, Nepal ranks low in areas such as starting a business, dealing with construction permits, getting electricity, registering property, and enforcing contracts. These areas of concern are especially relevant for the agribusiness sector, as they are the key foundations for any business to thrive. For instance, starting a business requires several procedures, which may include obtaining several permits and licenses, making it a time-consuming process and a significant barrier for entrepreneurs. Moreover, land acquisition for agriculture or processing facilities is a cumbersome process, with various bureaucratic hurdles and lack of proper land titles. Additionally, the lack of reliable and efficient electricity supply adds to the cost of doing business and reduces the competitiveness of agribusinesses in Nepal. To improve the ease of doing business and promote investment in the agribusiness sector, the government of Nepal needs to undertake several reforms. These reforms should be focused on addressing the key obstacles faced by agribusinesses, such as lengthy and complicated administrative procedures, a weak legal and regulatory framework, and inadequate infrastructure. To achieve this, the following steps could be taken: 1. Simplifying administrative procedures and reducing bureaucratic hurdles: As mentioned earlier, starting a business in Nepal is a cumbersome process due to the number of procedures involved. To address this issue, the government could implement a one-stop-shop system for business registration, where entrepreneurs can complete all the necessary procedures in one place. This would not only save time but also reduce the cost of doing business in the country. Furthermore, streamlining administrative procedures and digitizing the process would also reduce corruption and improve transparency. 2. Improving the legal and regulatory environment: The weak legal and regulatory environment is another major impediment to doing business in Nepal. In the agribusiness sector, this is especially concerning as it involves dealing with land-related issues, obtaining permits for agriculture, and complying with various environmental regulations. To address this, the government could introduce business-friendly laws and regulations that are clear and easy to comply with. Furthermore, establishing a specialized commercial court to handle business-related cases would improve the enforcement of contracts and protect the rights of businesses. 3. Investing in infrastructure: Nepal's agribusiness sector is significantly hampered by the lack of infrastructure, particularly in rural areas. Therefore, the government must invest in building proper infrastructure, such as roads, storage and processing facilities, and reliable electricity supply. This would not only improve the ease of doing business but also increase the competitiveness of Nepali agribusinesses in the global market. 4. Promoting access to finance: Access to finance is another major challenge for agribusinesses in Nepal, particularly for small and medium enterprises (SMEs). The government should collaborate with various financial institutions and develop specialized financial products tailored to the needs of agribusinesses. For instance, the establishment of an agricultural credit guarantee scheme or a venture capital fund for agribusinesses could significantly improve access to finance for small businesses. 5. Enhancing trade and market linkages: Agribusinesses in Nepal not only face challenges in the domestic market but also lack access to international markets. To address this, the government could enter into trade agreements with neighboring countries and improve infrastructure and logistics to facilitate trade. Furthermore, the promotion of agro-tourism and establishing direct links between farmers and consumers could also improve market linkages and provide better marketing opportunities for agribusinesses. In conclusion, the key to improving the ease of doing business and motivating the private sector in agribusiness in Nepal lies in undertaking comprehensive reforms that address the core challenges faced by businesses. This requires a coordinated effort from the government, private sector, and other stakeholders to create a conducive business environment in the country. The government must take urgent steps to implement the suggested reforms and build a platform where entrepreneurs and businesses can thrive. It is crucial to acknowledge that the agribusiness sector has immense potential to drive Nepal's economic growth, create employment opportunities, and reduce poverty. Therefore, Question 5 “Nepal ranked 94 in the ease of doing business index prepared by the World Bank, indicating that businesses are not thriving in the country. What can be done to improve the situation and motivate the private sector in agribusiness?” Answer Nepal, a landlocked country situated in South Asia, has been facing various challenges in terms of economic development, including difficulties in the business environment. According to the World Bank’s ease of doing business index, Nepal stands at the 94th position out of 190 countries, indicating that businesses are not thriving in the country. This low ranking creates a significant barrier for private sector development, particularly in the agribusiness sector. Therefore, it is crucial to explore the underlying factors contributing to Nepal’s low ranking and identify potential strategies to improve the situation and motivate the private sector in agribusiness. One of the primary factors contributing to Nepal’s low ranking in the ease of doing business index is the cumbersome bureaucratic processes and complex regulatory framework. According to the World Bank’s Doing Business 2020 report, Nepal ranks 169th out of 190 countries in terms of starting a business, with an average of 26.5 procedures required and an average time of 60.5 days (1). Similarly, the report also highlights that Nepal ranks 180th in terms of dealing with construction permits, with an average of 34 procedures and a time of 135.5 days (1). These bureaucratic hurdles and lengthy procedures discourage entrepreneurs, particularly in the agribusiness sector, where time and money are crucial factors. Therefore, simplifying the processes and streamlining the regulatory framework can significantly improve Nepal’s ranking and create a conducive environment for businesses. Apart from the bureaucratic challenges, inadequate infrastructure is another major hindrance to business development in Nepal. The country’s mountainous terrain, coupled with limited transportation networks, poses significant challenges for enterprises, including those in the agribusiness sector. For instance, the inadequate road network makes it difficult to transport agricultural products from rural areas to urban markets, resulting in higher transportation costs and lower profits for agribusinesses. As a landlocked country, Nepal also heavily relies on India for its trade and transportation, making it vulnerable to any disruptions in the neighboring country’s economy. Thus, investing in infrastructure development, particularly in transportation and communication, can significantly improve the business environment in Nepal and encourage private sector growth in agribusiness. Another critical aspect that needs attention is the limited access to finance for businesses in Nepal. According to the World Bank’s Doing Business 2020 report, Nepal ranks 135th in terms of getting credit, with only a score of 45.0 out of 100 (1). The report further highlights that Nepal has a low number of credit bureaus, and the legal rights index is significantly lower than the global average (1). This lack of access to finance and complicated legal procedures create significant barriers for entrepreneurs, particularly in the agribusiness sector, which often requires a considerable amount of investment. To address this issue, Nepal needs to strengthen its financial infrastructure, encourage the establishment of credit bureaus, and simplify legal procedures for obtaining credit. Additionally, the government can also offer loan guarantees or subsidies for agribusinesses, particularly for small and medium enterprises, to facilitate their growth and development. Moreover, promoting trade and investment is essential for private sector growth in Nepal’s agribusiness sector. The country has been implementing various trade policy reforms to improve its trade environment. However, there is still room for improvement, particularly in simplifying trade procedures and reducing trade barriers. According to the World Trade Organization’s Trade Facilitation Agreement, Nepal has implemented only 15.2% of its commitments (2). Therefore, Nepal needs to expedite the implementation process and promote regional and international trade to create a conducive environment for businesses, including those in the agribusiness sector. Additionally, the government can also offer incentives and tax exemptions for agribusinesses to attract foreign investment and promote export-oriented agro-based industries. In addition to the above-mentioned measures, there is a need for targeted policies and strategies to promote the growth of agribusinesses in Nepal. Agriculture is a vital sector for the country, contributing to nearly one-third of its GDP, and providing employment to more than two-thirds of its population (3). However, the sector remains largely subsistence-oriented, with limited value addition and commercialization. Therefore, there is a significant scope for promoting agribusiness and enhancing its contribution to the country’s economic development. This can be achieved through targeted policies aimed at modernizing the agricultural sector, encouraging agro-processing, enhancing market linkages, and promoting private sector involvement in research and development. Furthermore, promoting entrepreneurship and innovation is another crucial aspect of private sector development in Nepal. The country’s youth unemployment rate stands at a staggering 19.1%, indicating a significant gap in the labor market (4). However, with proper support and an enabling environment, these young people can be encouraged to become entrepreneurs and contribute to the country’s economic growth. The government can offer