Economics Answer Note #82

Question 1 Nepal ranked 94 in the ease of doing business index prepared by the worldbank indicating that business are not tthriving in the country. Answer According to the World Bank (2020), Nepal ranked 94 out of 190 countries, with a score of 63.2 points in the ease of doing business index. This shows a slight improvement from 2018, when Nepal ranked 110th with a score of 52.8 points. This indicates that there have been efforts made to make the regulatory environment more conducive for businesses in Nepal. The ease of doing business index is a measure of how supportive a country's regulatory environment is towards business operations and property rights. It consists of 10 indicators such as starting a business, registering property, getting credit, and enforcing contracts, among others. For Nepal, agriculture is a major sector which contributes to the country's economy. In fact, according to the World Bank (2020), 62% of the population is dependent on agriculture as their business or livelihood. This may have an impact on the overall ranking of Nepal in the ease of doing business index as the majority of the population may not be participating in other business activities. Furthermore, as stated by the World Bank (2020), the ease of doing business index only considers the major cities of a country and may not accurately reflect the business environment in rural areas. Given that Nepal's population is primarily based in rural areas, this may also have affected the country's ranking. On the other hand, efforts have been made by the Nepalese government to improve the business environment in the country. For instance, in 2019, the government announced the Nepali Startup and Innovation Policy which aims to support and promote entrepreneurship in the country (World Economic Forum, 2019). This is a positive step towards promoting a more diverse and thriving business sector in Nepal. In conclusion, Nepal's ranking of 94 in the ease of doing business index indicates that there is still room for improvement in the country's regulatory environment for businesses. While agriculture remains a dominant sector, it is important for the government to focus on promoting and supporting other industries as well to create a more diverse and sustainable economy. Question 2 Nepal ranked 94 in the ease of doing business index prepared by the worldbank indicating that business are not tthriving in the country.what can be done to improve the istuation and motivate the private sector in agribusiness Answer According to recent reports from the World Bank (2020), Nepal's ranking in the Ease of Doing Business Index has improved from 110th in 2018 to 94th in 2020. This may seem like a positive trend, but it still shows that there is room for improvement in creating a conducive regulatory environment for businesses in Nepal. The country's heavy reliance on agriculture, with 62% of the population dependent on it for their livelihood, highlights the need for prioritizing and improving the agribusiness sector. In this answer, we will examine the current state of agribusiness in Nepal, identify challenges, and propose solutions to improve the situation and motivate the private sector in agribusiness. To begin with, it is essential to understand the concept of agribusiness and its significance in Nepal. Agribusiness encompasses the entire value chain of agricultural production, from raw materials and inputs to production, processing, and distribution of the final product. It plays a crucial role in the country's economy, contributing to about 27% of the GDP and employing more than two-thirds of the labor force (World Bank, 2019). However, despite its economic significance, the agribusiness sector in Nepal faces various challenges that hinder its growth and potential. One of the major hindrances to agribusiness in Nepal is the lack of a supportive business environment. The World Bank's Ease of Doing Business Index measures the ease of starting and operating a business by evaluating factors such as business incorporation, obtaining licenses and permits, property rights, access to credit, and enforcement of contracts. The low ranking of Nepal in this index is indicative of the regulatory bottlenecks and red tape that businesses face in the country. These factors make it difficult for agribusinesses to start and grow, limiting their potential to contribute to the country's economy. Moreover, Nepal's agribusiness sector faces significant challenges in terms of infrastructure, technology, and access to markets. Lack of proper infrastructure such as storage, processing facilities, and transportation hinders agribusinesses' ability to produce and deliver high-quality products. This not only affects the efficiency of the production process but also lowers the value of the final product in the market. Additionally, the use of outdated technology and limited access to modern agricultural practices also hinder the sector's growth and productivity. Finally, inadequate market access for agribusinesses due to poor connectivity and inadequate trade policies restricts their ability to expand and tap into potential markets domestically and internationally. To improve the situation and motivate the private sector in agribusiness, several measures can be taken. Firstly, the government needs to address the regulatory bottlenecks and bureaucratic hurdles that businesses face. This can be achieved through regulatory reforms and streamlining the processes for starting and running a business. Similarly, there should be efforts to improve infrastructure and technology in the agribusiness sector. This can include investment in modernizing agricultural practices and providing support for the development of processing and storage facilities. Additionally, the government should work on improving market access for agribusinesses by negotiating favorable trade policies and improving connectivity through better infrastructure. In conclusion, although Nepal's ranking in the Ease of Doing Business Index has improved, there is still a lot of work to be done to create a conducive business environment in the country. The agribusiness sector, being a significant contributor to the economy, requires special attention and support to reach its full potential. By addressing regulatory bottlenecks, investing in infrastructure and technology, and improving market access, Nepal can create an enabling environment for agribusinesses to thrive and contribute significantly to the country's economic growth. Question 3 Nepal ranked 94 in the ease of doing business index prepared by the World Bank, indicating that businesses are not thriving in the country. Answer The World Bank's ease of doing business index evaluates the business environment of a country by measuring various aspects such as starting a business, obtaining construction permits, getting credit, paying taxes, trading across borders, and enforcing contracts. The latest ranking places Nepal at 94 out of 190 countries, which indicates that there is room for improvement in the country's business climate. In this response, I will explore some of the possible reasons for Nepal's low ranking and suggest potential solutions to address these issues. Possible reasons for Nepal's low ranking: 1. Cumbersome Business Registration Process: Starting a business in Nepal involves various steps and procedures, which can be time-consuming and costly. According to the World Bank's 2020 report, it takes an average of 37 days and costs 22.4% of the country's per capita income to register a business in Nepal. This lengthy and expensive process can discourage entrepreneurs from setting up new businesses in the country. 2. Difficulty in Obtaining Construction Permits: The process of obtaining construction permits in Nepal is also lengthy and complicated. It takes an average of 81 days and involves six procedures, which can be a major hindrance for businesses intending to invest in the country's infrastructure. 3. Challenges in Getting Credit: Another key factor contributing to Nepal's low ranking is the difficulty in accessing credit. The World Bank report states that getting credit in Nepal can take up to 18.5 % of the country's per capita income and involves lengthy procedures. This makes it challenging for small businesses to access financing, hindering their growth and expansion. Potential solutions to improve the business environment in Nepal: 1. Streamlining the business registration process: The government of Nepal can simplify the business registration process by reducing the number of procedures and days required, as well as the cost involved. This can be achieved by implementing online registration systems and reducing bureaucratic hurdles. 2. Improving the construction permit process: To encourage more investment in the construction sector, the government can streamline the process of obtaining construction permits by reducing the time and procedures involved. This can be achieved by implementing a one-stop-shop approach and digitizing the application process. 3. Facilitating access to credit: The government can promote access to credit by implementing policies that make it easier for businesses to access financing. This could include creating a credit information system, implementing secured transactions laws, and promoting alternative forms of financing. Useful sources: 1. World Bank's Ease of Doing Business Report - This report provides detailed information on the indicators used to measure the ease of doing business, including starting a business, obtaining construction permits, and getting credit in Nepal. 2. Doing Business Guide - Nepal conducted by PwC - This guide provides an in-depth analysis of the business climate in Nepal, including information on procedures, timelines, and costs involved in starting a business, obtaining construction permits, and getting credit. In conclusion, Nepal's low ranking in the ease of doing business index can be attributed to challenges in starting a business, obtaining construction permits, and accessing credit. To improve the business environment, the government of Nepal should implement policies that streamline these processes and make it easier for businesses to operate in the country. Question 4 Chewing gum is considered an inferior good. What would happen to the equilibrium price and quantity of chewing gum if income increased and more firms started producing chewing gum? Equilibrium price will go up and equilibrium quantity will go down. be indeterminate and equilibrium quantity will go up. go down and equilibrium quantity will be indeterminate. go up and equilibrium quantity will go up. Answer Chewing gum is typically considered an inferior good in economics, meaning that as a person's income increases, their demand for chewing gum decreases. This is due to the fact that as people have more disposable income, they may choose to spend their money on higher-quality goods and services, rather than on cheaper options like chewing gum. With an increase in income, the equilibrium price and quantity of chewing gum would be expected to change, assuming all else remains constant. The equilibrium price is determined by the intersection of the demand and supply curves, where the quantity demanded and supplied are equal. If income increases and more firms enter the market to produce chewing gum, the equilibrium price and quantity of chewing gum will likely be affected in the following ways: - Equilibrium price will go up: With an increase in income, the demand for chewing gum will decrease, causing the demand curve to shift to the left. However, with more firms entering the market, the supply curve will also shift to the right. As a result, the increase in supply will not be able to fully offset the decrease in demand, leading to an increase in the equilibrium price of chewing gum. - Equilibrium quantity will go down: As mentioned earlier, an increase in income causes a decrease in demand for chewing gum. This will lead to a leftward shift of the demand curve, resulting in a decrease in the equilibrium quantity of chewing gum. - Equilibrium quantity will be indeterminate: If the increase in supply due to more firms entering the market is large enough to fully offset the decrease in demand, then the equilibrium quantity will remain constant. This scenario is possible if the decrease in demand is small or if the increase in supply is significant. - Equilibrium quantity will go up:This scenario is only possible if the increase in supply due to more firms entering the market is larger than the decrease in demand caused by the increase in income. In this case, the equilibrium quantity of chewing gum will increase. Overall, the impact of an increase in income and more firms entering the market on the equilibrium price and quantity of chewing gum will depend on the magnitude of the changes in demand and supply. In a real-world situation, it is likely that all four scenarios may be observed in different markets, depending on various factors such as consumer preferences, production costs, and market competition. To further understand the concept of inferior goods and its impact on equilibrium price and quantity, the following sources can be consulted: - "Principles of Microeconomics" by N. Gregory Mankiw and Mark P. Taylor (Chapter 3) - "Microeconomics" by Paul Krugman, Robin Wells, and Antony Myatt (Chapter 4) - "Managerial Economics and Business Strategy" by Michael R. Baye (Chapter 3) - "Intermediate Microeconomics: A Modern Approach" by Hal R. Varian (Chapter 10) - "Economics: Principles, Applications, and Tools" by Arthur O'Sullivan, Steven M. Sheffrin, and Stephen J. Perez (Chapter 5) These textbooks provide a comprehensive explanation of the concept of inferior goods and its impact on equilibrium in the context of different market structures. Additionally, they also include numerical examples and graphs to illustrate the relationship between income, demand, supply, and equilibrium price and quantity. Question 5 As more people migrate to Gauteng what do you think happens to the demand curve for milk in most Gauteng markets? The demand curve shifted to the right. There was no shift, but there was an increase in quantity demanded. There was no shift, nor any increase or decrease in quantity demanded. The demand curve shifted to the left. Answer As more people migrate to Gauteng, the demand for milk in most Gauteng markets will likely increase. This is because of the basic principle of supply and demand: as population increases, there will be a larger number of potential consumers for milk products. However, it is important to note that the impact on the demand curve for milk in Gauteng markets will depend on several factors, including the availability of substitutes, changes in consumer preferences, and the price elasticity of milk. The demand curve is a graphical representation of the relationship between the quantity of a good or service demanded by consumers and the price of that good or service. In this case, the demand curve for milk in Gauteng markets will shift to the right, indicating an increase in the quantity demanded of milk. According to the law of demand, as the price of a good increases, the quantity demanded decreases. This means that if the price of milk were to remain constant, an increase in demand would lead to a shortage of milk in Gauteng markets. As a result, producers would have an incentive to increase the price of milk to meet the growing demand, leading to a movement along the demand curve. In addition to an increase in quantity demanded, there may also be a shift in the demand curve itself. This could occur if there are significant changes in factors other than price that impact the demand for milk. For example, if there are changes in consumer preferences or an increase in the availability of substitutes, the demand curve could shift to the left, indicating a decrease in demand. Furthermore, the price elasticity of demand for milk will also play a role in the impact of migration on the demand curve. The price elasticity of demand measures the degree to which the quantity demanded of a good or service changes in response to a change in price. If the demand for milk is relatively inelastic, an increase in population may have a greater impact on the demand curve and lead to a larger increase in quantity demanded. In light of the above factors, it is difficult to predict the exact impact of migration on the demand curve for milk in most Gauteng markets. However, it is safe to say that there will be an increase in the quantity demanded of milk, and the demand curve may shift to the right if there are significant changes in factors other than price. In summary, as more people migrate to Gauteng, the demand curve for milk in most Gauteng markets is likely to shift to the right, indicating an increase in the quantity demanded of milk. However, the extent of this impact will depend on factors such as changes in consumer preferences, availability of substitutes, and the price elasticity of demand for milk. Further research and analysis may be needed to fully understand the impact of migration on the demand for milk in Gauteng markets.