BMU5003 Economic Analysis For ManagersDr. Ivan Png
Individual Assignment 21 April 2010
1. Fertility (D12010, #1)
a. Referring to the linear trend : (i) If the literacy rate is 60%, what is the fertility rate? (ii) If the literacy rate is 100%, what is the fertility rate?
Answer (i) : 7.8Answer (ii) : 1.4
b. A large cost of having a baby is the time that a mother must invest to bear and rear the child. For a more educated woman, is the value of this time higher or lower?
Answer : For a more educated woman the value of this time is higher. Assuming the higher level of literacy has come about with the investment of time and money (outflow) into education, and consequently that the return on this investment will only be generated by starting to work and earning money (inflow), then it follows that the opportunity cost of having a baby will be higher than for someone who has not invested in education. A more educated woman is more likely to take into account the cost of the loss of income and hence is more likely to have none or fewer children. She is also more likely to compute the cost of the additional time that will be needed to be spent with a child (or more than one child) and hence decide to have no children or fewer children (especially since the amount of time available per day is finite and identical for everyone i.e. 24hrs).
c. In the chart mark “cost of child” on the vertical axis. Does the trend line have any relation to a demand curve? Please explain.
Answer : Yes it does; it is identical in reasoning. The higher the price (i.e. the cost of bearing and rearing the child) the lower the quantity demanded (i.e. the number of children birthed/desired). The cost can be perceived or actual. The other assumption is there is diminishing marginal returns setting in i.e. as the costs of bearing and rearing multiply by the number of children, or as the perceived/actual benefit of having children gets fulfilled, there will be a falling desire to have more children.
d. Please give an alternative explanation for the relation in the figure: Use the fertility rate to explain female literacy.
Answer : Essentially it is talking about the “supply” (fertility rate) in relation to prices (female literacy) instead of looking at how costs impact the demand (for children). The premise is - as the fertility rate rises, the literacy rate of females falls.
One assumption taken is that there is a fixed “production” time span - between the age of possible fertility to that of permanent infertility. On average that can be from 15 years to say 40 years, give or take a few years. Female literacy is also calculated with a fixed period of time – usually from the age of 15 years to about 24 years. The overlap is clear, meaning that education and having children are like “complements” in an economic sense. Given the overlap between fertility and education, it stands to reason that as female fertility goes up (i.e. more children are born), less time and money are available to be spent on education, thereby causing literacy rates to be lower.
Another explanation is based on the availability of educational facilities in relation to all the children being born within a particular geographical area. It is conceivable that the rate of growth of educational facilities is not commensurate with the rise in fertility i.e. with the number of children born. Compounded with a cultural desire/bias for sons as opposed to daughters, a rise in fertility could correspond to a fall in female literacy rates if boys are given preference for obtaining an education over girls, given scarcer educational opportunities. This trend has been seen in many parts of the developing world, especially regions which are largely agrarian/agricultural e.g. Bangladesh/India etc. and is supported by many studies.
2. Answers to “Tankers”