The document discusses economic development and how it relates to the use of resources and waste. It states that economic growth, or an increase in total productivity, does not necessarily result in economic development, defined as growth in average income per person, if population growth outpaces economic growth. The document also introduces the concepts of gross national income measured at market exchange rates and purchasing power parity, using examples like the Big Mac Index to illustrate how purchasing power parity can provide a better comparison of national economies than market exchange rates alone.

1. Economic Development and Resources
 Economic Development:
 growth in average income per person.
 To increase well-being:
 typically requires that we use more of the earth’s resources.
 Every resource used creates waste products.
 Efficiency in reducing waste influences extent we can
 minimize damage to environment - and -
 sustain a larger population.
 Wealth of a nation = natural resources + human resources.

2. Relationship between Growth and
Development
 Economic Growth:
 increase in total amount of
productivity in a country.
 Economic Development:
 growth in average income per person.
 You can have economic growth
without economic development - if -
 Population is growing faster than the economy.
 You can theoretically have economic development
without economic growth - if –
 Population is declining (but this is not common)

3. GNI: Gross National Income
 GNI can be measured as:
 currency at exchange rates – or –
 purchasing power parity (PPP).
 Purchasing Power Parity
 How much money would be needed to purchase the
same goods and services in two countries
○ Equates two exchange rates so we can compare
○ exchange rate between one currency and another currency is in
equlibirium when their domestic purchasing powers at that rate of
exchange are equivalent
○ Big Mac Index
○ Starbucks Tall Latte Index

4. Big Mac/Starbucks Index
 McDonald’s sells hamburgers in
nearly 120 countries.
 If the Big Mac costs $3.50
in the U.S. it should cost the
same in real terms anywhere else
in the world.
 If a Big Mac is 2.50 British pounds
that tells you there are 2.50 pounds = 0.71 pounds per US$
$3.50
in terms of the “real” cost of living.
 If the current exchange rate is 2 pounds per USD, then the
pound is slightly overvalued relative to the dollar.

5. Big Mac/Starbucks Index
 If a Starbucks latte is $3.00 in the US
and 60 Mexican pesos, there are
 60 pesos = 20 pesos per US$
$3.00
in terms of the “real” cost of living.
 If the current exchange rate is 13.2 pesos
per USD, then the peso is slightly
undervalued relative to the dollar.
 Why it’s useful:
 based on well-known food whose price is easily tracked in many countries
 includes input costs from a wide range of sectors in the local economy
○ agricultural commodities (beef, bread, lettuce, cheese)
○ labor (blue and white collar)
○ Advertising
○ rent & real estate costs
○ transportation

6. Big Mac/Starbucks Index