Questions & explanations
1. Why might the Gini coefficient give a wrong idea about income inequality?
The Gini coefficient summarizes income distribution into a single number, but it ignores how inequality feels in daily life. For example, two countries can have the same Gini but very different shapes of distribution—one might have many poor and a few very rich, while another has a more even spread. The Gini is also sensitive to how we measure income: using pre-tax income hides the effect of taxes and transfers that reduce inequality. Additionally, the Gini does not tell us about wealth, only income, so a country with low income inequality could have high wealth inequality. Finally, top-coding (not recording very high incomes) can make the Gini seem lower than it really is.
2. How does RBTC differ from SBTC in its effect on the job market?
Skill-biased technological change (SBTC) raises demand for all high-skilled workers and lowers demand for low-skilled workers generally. It predicts a simple widening: high earners get richer, low earners get poorer. Routine-biased technological change (RBTC) instead focuses on the middle: it replaces routine mid-skill jobs while increasing both high-skill and low-skill jobs. So RBTC predicts job polarization, not just a gap between skill levels. For example, computer programmers (high-skill) and waiters (low-skill) both see job growth, while machine operators (mid-skill) lose out. RBTC is a more specific theory within the broader idea of technology and inequality.
3. Compare using old farming methods with using modern sustainable technology.
Old farming methods often rely on burning fields, using chemical fertilizers, and wasting water. These can harm soil, pollute rivers, and release greenhouse gases. Modern sustainable technology includes drip irrigation that uses less water, solar-powered pumps, and natural pest control with insects. These methods save resources and keep the land productive for many years. However, modern technology may require training and initial investment, while old methods are known and cheap in the short term. The yield from sustainable technology is often as good or better, and it does not poison the environment. So, the new way is better for the future but harder to start.
4. What is the common but differentiated responsibilities (CBDR) principle?
The common but differentiated responsibilities principle is an idea in international environmental law. It says all countries share a duty to protect the environment, but their responsibilities are different based on how much they have contributed to the problem and their ability to fix it. Richer, more industrialized countries have caused more pollution in the past and have more money and technology. So they should take bigger steps to reduce pollution and help poorer countries. Poorer countries have less blame and fewer resources, so they get more time and support to act. This principle is the basis of many climate treaties like the Paris Agreement.
5. How does the Prebisch-Singer hypothesis relate to development strategies for poor countries?
The hypothesis suggests that poor countries should not rely only on exporting primary goods. Instead, they should try to industrialize and make more manufactured goods. This is called import substitution or building domestic industries. By producing cars, textiles, or electronics, they can capture more value and avoid falling terms of trade. Some countries have also tried to diversify their exports to include services or higher-tech products. However, manufacturing alone is not enough; countries also need good education, infrastructure, and stable policies. The hypothesis remains a key argument for structural transformation from farming to industry.
6. Compare sustainable development in a peaceful country versus a country at war.
In a peaceful country, people can focus on building schools, hospitals, and businesses because they feel safe. The government can make long-term plans for clean energy and protecting forests. In a country at war, bombs destroy buildings and roads, and people spend their energy on staying alive. Natural resources like oil or minerals often get stolen to pay for fighting. Peaceful countries can trade and borrow money easily, while war-torn countries struggle to get loans. For example, a peaceful nation can invest in solar power, but a warring nation might burn forests for fuel. Peace gives the foundation for every sustainable development goal.
7. Give an example of how the CBDR principle is used in international climate agreements.
In the Paris Agreement, all countries set their own climate targets called Nationally Determined Contributions (NDCs). But the agreement says developed countries must take the lead by setting absolute emission reduction targets. Developing countries are encouraged to enhance their efforts over time, but they are given flexibility. Also, developed countries committed to provide $100 billion per year to help developing countries with climate action. This reflects CBDR: richer countries do more and also help poorer ones. Another example is the Kyoto Protocol, which only required developed countries to legally cut emissions, not developing ones.
8. Why do the terms of trade for primary commodities tend to decline over time according to the hypothesis?
The terms of trade for primary commodities decline because the demand for these goods does not grow as fast as the demand for manufactured goods. When people earn more money, they spend a smaller share on food and raw materials and a larger share on cars, electronics, and services. Also, primary commodity markets are often competitive, so producers cannot raise prices easily. Meanwhile, manufacturers in rich countries can use technology to make goods cheaper, but they keep prices high. This gap causes the relative price of primary goods to fall. As a result, countries that export only primary goods get less value for their exports over time.
9. What is technology innovation for sustainable development?
Technology innovation for sustainable development is a new or improved tool, machine, or method that helps meet human needs without harming the environment. For example, a solar-powered lamp that replaces kerosene lamps is an innovation. It gives light without smoke or fire risk. Another example is a water pump that runs on sunlight instead of diesel. These innovations can make life better for poor communities while reducing pollution. They also create jobs and can be cheaper in the long run. Technology alone is not enough; it must be accessible and affordable to everyone. But when well designed, it speeds up progress toward sustainability.
10. How does Latin America's structural transformation differ from East Asia's?
Latin America's transformation was slower and less complete than East Asia's. East Asian countries focused on exporting manufactured goods from early on, competing globally. Latin American countries first used import substitution, protecting home industries from foreign competition. This led to inefficient factories and less export success. East Asian governments also invested heavily in education and infrastructure, while Latin America had more inequality and political instability. As a result, East Asia caught up faster with rich countries. Latin America still relies more on exporting natural resources, though some industries have grown.
11. How does routine-biased technological change (RBTC) differ from SBTC?
Routine-biased technological change, or RBTC, focuses on replacing jobs that have routine tasks, whether they are high-skill or low-skill. For example, some legal document review is routine and can be automated, affecting lawyers as well. SBTC, on the other hand, says technology raises the demand for all high-skill workers. RBTC predicts that middle-skill routine jobs are most replaced, while high-skill non-routine and low-skill non-routine jobs grow. This is called 'routine replacement' and often produces wage polarization. SBTC explains a rise in overall inequality, while RBTC explains a hollowing out of the middle. Both are important.
12. How does housing segregation affect wealth inequality?
Housing segregation means different races or income groups live in separate neighborhoods. Often, poor minority neighborhoods have lower house prices and slower growth. So homes there gain less value. Meanwhile, rich white neighborhoods see high price increases. This means minority homeowners cannot build as much wealth from their homes. Also, segregated areas have worse schools and fewer jobs, so children have fewer opportunities. This legacy of discrimination (like redlining) means the housing market itself creates wealth inequality. Even today, homes in Black neighborhoods in the US are valued less than similar homes in white areas.