IDs and Paired-Concept Questions

Question

Examlex · Accepted Answer

The Answer is Structural Transformation:

Structural transformation refers to the process by which an economy shifts its industrial and economic structure from a primary focus on agriculture and natural resource extraction to a more diversified structure that includes manufacturing, services, and high-tech industries. This transformation is often associated with economic development and growth, as it typically leads to higher productivity, increased employment opportunities in non-agricultural sectors, and improved standards of living.

The significance of structural transformation lies in its impact on a country's economic performance and its ability to provide better social and economic outcomes for its population. As economies undergo structural transformation, they often experience improvements in infrastructure, education, and health services, which further stimulate growth and development.

Engel's Law:

Engel's Law is an economic theory that posits that as household income rises, the proportion of income spent on food decreases, even if the absolute expenditure on food may continue to increase. This law is named after the German statistician Ernst Engel, who observed this relationship in the mid-19th century.

The significance of Engel's Law is that it provides insight into consumer behavior and the allocation of household budgets. It suggests that as people become wealthier, they choose to spend a smaller share of their income on necessities like food, and a larger share on other goods and services, such as education, healthcare, and leisure activities.

Relationship between Structural Transformation and Engel's Law:

The relationship between structural transformation and Engel's Law is rooted in the broader economic development process. As an economy undergoes structural transformation, the average income of its population tends to increase due to higher productivity and the creation of better-paying jobs in manufacturing and services. According to Engel's Law, as incomes rise, households spend a smaller proportion of their income on food. This shift in consumer spending patterns can further stimulate the growth of non-agricultural sectors, reinforcing the structural transformation of the economy.

Moreover, as the demand for non-food items increases, it can lead to the expansion of industries that produce these goods and services, which in turn can lead to more employment opportunities and technological advancements. This dynamic interplay between changing consumption patterns and economic restructuring helps to drive the overall development process, leading to a more diversified and resilient economy.

In summary, structural transformation describes the evolution of an economy's industrial base, while Engel's Law explains a pattern of consumer spending that accompanies rising incomes. Together, they illustrate the interconnectedness of economic growth, consumer behavior, and the changing composition of an economy over time.

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