① Fair Cost Accounting Vs Historical Cost Essay

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Fair Cost Accounting Vs Historical Cost Essay



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110 Historical Cost vs Fair Value Accounting

Translate PDF. These practice questions will help you test your understanding of the concepts and rules included in your CMA study materials by requiring you to apply those concepts and rules to unique and varying situations. You will encounter different scenarios and applications on your actual examination so it is essential that you understand the underlying concepts. In general, it will not be helpful to you to memorize particular questions. Essay questions appear in both Part 1 and Part 2 of the CMA exam and combine topics from the part in which they appear. No inference should be made from the lack of practice questions in any topic areas. All topic areas listed in the Content Specification for each exam part can be tested in the essay questions for that part at the difficulty levels shown.

The CMA Program is a rigorous test of your skills and capabilities and requires dedication to be successful. We hope that these practice questions will be a valuable resource as you pursue your goal of certification. Good luck! The company has its corporate headquarters in Buenos Aires and a central manufacturing facility about miles away. Since the manufacturing facility is so remote, it does not receive the attention or the support from the staff that the other units do. The president of Brawn is concerned about whether proper permits have been issued for new construction work being done to handle industrial waste at the facility. In addition, he wants to be sure that all occupational safety laws and environmental issues are being properly addressed.

Identify and describe the two fundamental types of internal audits. Using examples, describe two situations where each type of audit would be applicable. Referring to Brawn Technology, 1. Explain each of your recommendations. CSO: D. Types of audits conducted by internal auditors LOS: D. Define and identify the objectives of a compliance audit and an operational audit CSO: D. Internal control structure and management philosophy LOS: D. According to handwritten notes on the face of the report, CMMC had been using a residential landfill in a nearby township to dump toxic coal cleaning fluid wastes over a considerable period of time.

The report stated that locating a new dump site was urgent because the current one was nearing capacity. Raminov realized that it was possible CMMC had been improperly disposing of highly toxic fluids in a landfill that was restricted to residential refuse. Besides the obvious hazards to residents of the area, there could be legal problems if and when the authorities were notified. The financial consequences of clean-up actions, as well as the loss of CMMC's generally good environmental reputation, could be catastrophic for the company. Raminov asked his supervisor how this item was to be included in the footnotes and inquired whether an accrual for clean-up costs was anticipated.

His supervisor told him to "forget about this matter" and that he had no intention of mentioning one word about waste disposal in this year's financial statements. If he continues to be rebuffed by his employer, should Raminov notify the appropriate authorities? Should he anonymously release the information to the local newspaper? Explain your answers. CSO: E. Identify and describe relevant standards that may have been violated in a given business situation and explain why the specific standards are applicable CSO: E. Resolution of ethical issues LOS: E. One division, Alpha, uses a highly automated process that had been outsourced for a number of years because the capital investment required was high and the technology was constantly changing.

Two years ago, the company decided to make the necessary capital investment and bring the operation in house. In her new job as accounting manager, Kimbell is on the budget committee for the Alpha Division. The Board has requested from the committee a post-audit review of the actual cost savings. While working on the review, Kimball noted that several of the projections in the original proposal were very aggressive, including an unusually high salvage value and an excessively long useful life.

If more realistic projections had been used, Kimbell doubts that the Board would have approved the investment. According to the committee members, the post-audit report would not discuss these issues; the committee members believe that certain adjustments to the review are justified to ensure the success of the Alpha division and the company as a whole. MRC owns and operates a large club with 2, members in a metropolitan area.

The club has experienced cash flow problems over the last five years, especially during the summer months when both court use and new membership sales are low. Temporary bank loans have been obtained to cover the summer shortages. The proposal would increase membership fees and replace the hourly tennis and racquet ball court fees with a quarterly charge that would allow unlimited usage of the courts. The new rates would remain competitive when compared to the rates of other clubs in the area. The proposed fee structure is shown below, along with the current membership distribution. The membership distribution is assumed to remain unchanged. All members would be required to pay the quarterly court charges.

Include supporting calculations where appropriate. How would sensitivity analysis help MRC management in the decision-making process? Identify at least four factors that MRC should consider before implementing this decision. CSO: A. Financial budgets LOS: A. Demonstrate an understanding of the relationship between the capital expenditure budget, the cash budget, and the pro forma financial statements CSO: A2. Forecasting techniques LOS: A. Identify the benefits and shortcomings of sensitivity analysis CSO: A. Characteristics of a successful budget process LOS: A. The product will be marketed exclusively via an internet website. For the coming year, sales have been projected at three different levels: optimistic, neutral, and pessimistic.

TruJeans does keep inventory on hand, but prefers to minimize this investment. The controller is preparing to assemble the budget for the coming year, and is unsure about a number of issues, including the following. Whether to use job order costing or process costing. In addition, the controller has heard of kaizen budgeting and is wondering if such an approach could be used by TruJeans.

How can the controller use the expected value approach to set the sales level for the budget? What additional information would be needed? How could the use of variable direct costing mitigate the problem of how to allocate the fixed costs to individual units? Which cost system seems to make more sense for TruJeans, job order costing or process costing? Explain your answer. Expected value LOS: A. Calculate the expected value of random variables CSO: C. Variable direct costing LOS: C. Demonstrate an understanding of the characteristics of variable direct costing CSO: C. SSI purchases logs from independent timber contractors and processes the logs into the following three types of lumber products.

These products are the result of a joint sawmill process that involves removal of bark from the logs, cutting the logs into a workable size ranging from 8 to 16 feet in length , and then cutting the individual products from the logs, depending upon the type of wood pine, oak, walnut, or maple and the size diameter of the log. The joint process results in the following costs and output of products for a typical month. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill.

Based on the information given for Sonimad Sawmill Inc. Prepare an analysis for Sonimad Sawmill Inc. Be sure to provide all calculations. CSO: C. Joint and by-product costing LOS: C. Since inception, Alyssa has used only one manufacturing overhead pool to accumulate costs. Overhead has been allocated to products based on direct labor hours. Until recently, Alyssa was the sole producer of Ruff Stuff and was able to dictate the selling price. However, last year Marvella Products began marketing a comparable product at a price below the standard costs developed by Alyssa. Market share has declined rapidly, and Alyssa must now decide whether to meet the competitive price or to discontinue the product line.

Recognizing that discontinuing the product line would place additional burden on its remaining product, Tuff Stuff, Alyssa is using activity- based costing to determine if it would show a different cost structure for the two products. The two major indirect costs for manufacturing the products are power usage and set-up costs. Most of the power usage is used in fabricating, while most of the set-up costs are required in assembly. The set-up costs are predominantly for the Tuff Stuff product line. A decision was made to separate the Manufacturing Department costs into two activity centers: 1 Fabricating using machine hours as the cost driver activity base , and 2 Assembly using the number of set-ups as the cost driver activity base. By allocating overhead based on direct labor hours, calculate the 1.

After separation of overhead into activity pools, compute the total budgeted cost of the 1. Fabricating Department. Assembly Department. Using activity-based costing, calculate the unit standard costs for 1. Tuff Stuff. Ruff Stuff. Discuss how a decision by Alyssa Manufacturing regarding the continued production of Ruff Stuff will be affected by the results of your calculations in Requirement C. CSO: B. Use of standard cost systems LOS: B. Demonstrate an understanding of the use of standard costs CSO: C. Plant-wide versus departmental overhead LOS: C. Calculate the per unit variable overhead expense CSO: C. Activity-based costing LOS: C. The company expanded into the pre-cut housing market in when it acquired Presser Company, one of its suppliers.

Lawton uses return on average investment ROI as a performance measure the investment defined as operating assets employed. Management bonuses are based in part on ROI. Calculate the following performance measures for the year just ended for the Presser Division of Lawton Industries. Return on average investment in operating assets employed ROI. Residual income calculated on the basis of average operating assets employed. Would the management of Presser Division have been more likely to accept the investment opportunity it had during the year if residual income were used as a performance measure instead of ROI?

Explain you answer. The Presser Division is a separate investment center with Lawton Industries. Identify and describe the items Presser must control if it is to be evaluated fairly by either the ROI or residual income performance measures. Calculate return on investment LOS: B. Calculate residual income LOS: B. When he first started the company, Crosby managed the business by himself, overseeing purchasing and production, as well as maintaining the financial records. The only employees he hired were production workers.

Smith had an MBA and ten years of experience in the finance department of a large company. Smith seemed to be a dedicated and hard- working employee. His apparent integrity quickly earned him a reputation as an outstanding and trusted manager. Later in the year, Crosby hired another manager, Joe Fletcher, to oversee the production department. Crosby continued to take care of purchasing and authorized all payments. Fletcher was highly qualified for the position and seemed to be reliable and conscientious. Crosby believed that Fletcher and Smith were both good managers whom he could trust and gave them expanded responsibilities.

Soon Crosby began taking a hands-off approach to managing his business. He frequently took long vacations with his family and was not often at the office to check on the business. He was pleased that the company was profitable and expected that it would continue to be profitable in the future under the supervision of two qualified and trusted managers. One year after Crosby left the management of the company to Smith and Fletcher, business began to experience a decline in profits. Crosby assumed that it was due to a cyclical downturn in the economy.

When Standard continued to decline even as the economy improved, Crosby began to investigate. He noticed that revenues were increasing but profits were declining. He also discovered that purchases from one vendor had increased significantly as compared to the other five vendors. Crosby is concerned that fraud may be occurring in the company. Identify and describe four internal control deficiencies within Standard Lock Inc. For each of the internal control deficiencies identified, recommend an improvement in procedures that would mitigate these deficiencies. If the company were to implement an ideal internal control system, can it guarantee that fraud would not occur in future?

The proposal recommended that SieCo purchase from Service Corp. The cost savings in the proposal included the elimination of the direct labor costs plus the elimination of manufacturing overhead cost in the Drilling Department as SieCo charges manufacturing overhead on the basis of direct labor costs using a plant-wide rate. Altman told Simpson that the project had been approved. Hunter told Altman not to worry; Service Corp will do a great job. Using the information from Exhibit 1, describe the shortcomings of the system for applying overhead that is currently used by SieCo.

Explain the misconceptions underlying the statement that the manufacturing overhead cost in the Drilling Department would be reduced to zero if the automation proposal were implemented. CSO: C3. Determination of allocation base CSO: E. Evaluation and resolution of ethical issues LOS: C. Demonstrate an understanding of the different methods of determining overhead rates, e. GRQ has projected this trend of successful earnings and bonuses to continue. GRQ has no other vendors available within the United States to competitively provide this raw material in the magnitude needed to support their continued record of profitable operations.

As part of the due diligence process, an analyst with AAS has asked John Spencer, controller of GRQ, if he knows of any material event that would impact earnings over the next several years. He spoke with Bob Green, the CFO of GRQ, telling him that while the profit projections for the remainder of the current year will match the earnings of prior years, it is obvious that projected earnings for the next year will be greatly reduced.

Green informed Spencer that the executive committee had met and decided that only members of top management were to be made aware of the situation with their key supplier. Accordingly, Spencer should not inform AAS of the situation with the supplier. Evaluation and resolution of ethical issues LOS: E. Pierce has seen many news stories recently of competitors having severe financial difficulty, including bankruptcy.

He has also seen other corporations suffer from regulatory indictments and fines. Pierce not only wants to avoid such problems, but he also wants his company to report stable earnings and a rising stock price. He also wants to make sure the company is in compliance with the requirements of the Sarbanes Oxley Act of Identify and explain two risks that a multinational firm such as Med Direct may encounter in each of the following three areas: 1. Buying raw materials from other countries 2. Selling on credit terms to customers in foreign countries 3. Developing and manufacturing hi-tech equipment B. Identify two reasons why each of the following three elements is important for a risk assessment and control program to be effective. Provide one example of each element.

Understanding your business 2. Implementing checks and balances 3. Developing procedures that set limits or establish standards C. Identify and explain the compliance requirements with respect to internal controls in the Sarbanes Oxley Act of SOX Internal control risk LOS: D. The discount retail segment appears very profitable because the basic operating budget assigns all fixed expenses to production for the major retailers, the only predictable market. However, in a recent analysis of customer complaints, George Wilson, the Cost Accountant and Barry Ross, the Quality Control Engineer, have ascertained that normal rework does not bring the audio systems up to standard.

Unfortunately, there is no way to determine which reworked audio systems will fail because testing will not detect this problem. Wilson has included the audio system failure and rework problem in his written report that has been prepared for the upcoming quarterly meeting of the Board of Directors. Due to the potential adverse economic impact, Wilson has followed a long standing practice of highlighting this information.

Tell Wilson to tone that down. People cannot expect their systems to last forever. The probable failure of reworks can be referred to briefly in the oral presentation, but it should not be mentioned or highlighted in the advance material mailed to the Board. Identify and discuss the ethical considerations that George Wilson should recognize in deciding how to precede in this matter. CAP is in the process of developing a bid to supply an ignition system module to Korea Auto Corporation KAC , a South Korean automobile manufacturer, for a new line of automobiles for the next four- year production cycle.

The Request for Proposal issued by KAC specifies a quantity of , modules in the first year and , units in years 2 through 4 of the contract. Other relevant data are shown below. The company economist estimates that the exchange rate will average 1, KRW per U. Dollar for the four-year time period. Calculate the after-tax incremental cash flows in U. Dollars for the following periods: 1. Period 0. Period 1. Period 4 operating cash flow 4. Period 4 terminal cash flow. The assumptions used to develop the cash flows are subject to various degrees of estimation error. For each of three different cash flow variables, identify and discuss one potential risk that could affect the estimates made by CAP. Identify and calculate the relevant cash flows of a capital investment project on both a pretax and after-tax basis CSO: D.

Risk analysis in capital investment LSO: D. The pool is open each year for 90 days during the summer months of June, July, and August. A daily admission is charged to patrons of the pool. The City Manager has set a goal that pool admission revenue, after subtracting the state fee and variable costs, must be sufficient to cover the fixed costs. The following budget for the pool has been prepared for the current year. Given the anticipated mix of adult and student admissions, how many total admissions must the pool have in order to break even for the season? Regardless of the admissions mix, what is the highest number of admissions that would be necessary to break even for the season? Regardless of the admissions mix, what is the lowest number of admissions that would be necessary to break even for the season?

The City Manager is considering several pricing strategies that could increase the admissions fees at the swimming pool. Define each of the pricing strategies listed below and discuss how each could help to eliminate the expected deficit. Product-mix pricing. Volume discount pricing. Penetration pricing. Off-peak pricing. Breakeven analysis LOS: C. Demonstrate an understanding of how changes in unit sales mix affect operating income in multiple-product situations CSO: C. Setting prices LOS: C. The Dusty Coal Mine is a strip mine that has been in operation for a number of years and is expected to operate for another 15 years. Environmental regulations require mine operators to reclaim the land and restore it to its original configuration and vegetation state once mining ceases.

Assume that income tax regulations currently allow both the deposits to the trust fund and the earnings on the funds to be exempt from taxation. GML would like to establish a uniform charge per ton for reclamation costs to be included in contracts with customers for future sales. Annual sales from the mine are expected to be 1,, tons per year over the next 15 years. Calculate the cost per ton that GML should include in its contracts in order to accumulate a sufficient amount in the trust fund to be able to pay the cost to reclaim the land at the end of the year period. Identify and discuss four uncertainties that GML faces over the year period as far as reclamation is concerned.

For each uncertainty, describe what the effect would be on the reclamation cost per ton. Without performing any calculations, discuss the effect on GML if the following changes were to be made in the tax regulations. Amounts collected for reclamation would be considered taxable income, even if they are deposited in external trust funds. Earnings on the trust funds are currently taxable. Sunk costs, opportunity costs and other related concepts LOS: C. Calculate relevant costs given a numerical scenario CSO: C. Risk identification and exposure LOS: C.

Kolobok Inc. Over the past several years, the company has experienced rapid and continuous growth and is planning to increase manufacturing capacity by opening production facilities in new geographic areas. These initiatives have put pressure on management to better understand both their potential markets and associated costs. Since the company began operations in , Kolobok has used the mark-up approach for establishing prices for six-gallon containers of ice cream. The market adjustment is used to appropriately position a variety of products in the market.

The goal is to price the products in the middle of comparable ice creams offered by competitors while maintaining high quality and high differentiation. Kolobok is considering replacing mark-up pricing with target costing and has prepared the table below to better compare the methods. Accordingly, there are three main competitors in the market as follows. Describe target costing. Analyze and compare the two alternative pricing methods: mark-up pricing and target costing. Recommend which pricing method mark-up or target Kolobok should use in the future and explain why.

Differentiate between a cost-based approach and a market-based approach to setting prices CSO: C. Target costing LOS: C. Calculate selling price using a cost-based approach C. Calculate the target operating income per unit and target cost per unit C. As far as external financing is concerned, discussions with investment bankers indicate that market conditions for Langley securities should be as follows. Ignore floatation costs for all calculations. Be sure to identify how many new shares of common stock will have to be sold. Show your calculations. No calculations are required. The corporate tax rate is increased. Banks indicate that lending rates will be increasing. The firm decides to significantly increase the percent of debt in its capital structure since debt is the lowest cost source of funds.

Debt management LOS: B. Identify and evaluate debt issuance or refinancing strategies CSO: B. Value bonds, common stock, and preferred stock CSO: B. Marginal cost of capital LOS: B. Two promising opportunities are being evaluated. This project would entail developing new products using new or expanded facilities and would be financed out of earnings and through a series of long-term debt offerings over the next two years. The acquisition could be completed by the end of the calendar year and would be financed by cash and long-term notes. Safin Bakery would be merged into Pearson Foods but operate independently as a separate division for two years. At the end of two years, Pearson would be able to consolidate the administrative, financial, and operating functions.

Negotiations have reached an impasse, and it appears that a strike is imminent. The controller has called the general accounting manager into his office to discuss liquidity issues if and when a strike does occur. The controller asks the accounting manager to recommend measures to assess liquidity if a strike were to occur. Although some of the nonunion employees could probably produce test instruments during a strike, the controller would rather be conservative and assume no shipments during this time frame.

Since the customers may go to other sources to obtain the products they need during a strike, cash receipts for current outstanding amounts owed by customers may not be paid on a timely basis. Define liquidity and explain its importance to Sentech. Identify three measures that could be used to assess liquidity and explain how to calculate these measures. Include in your discussion the reasons why the other measures would not be as appropriate. Liquidity LOS: A.

Analyze working capital by calculating the current ratio, the quick acid test ratio, the cash ratio, the cash flow ratio, and the net working capital ratio LOS: A. A Security Improvement Team has been formed to formulate a solution. Janet Lynch is the financial analyst assigned to the team. The team is investigating the following three vendors. Vendor C would provide all hardware and personnel to operate and maintain a security system as called for by the specifications of Ultra Comp for all its locations. Calculate the NPV of each of the three alternatives. Based on financial considerations, which of the three alternatives should the team recommend?

Explain why. Define sensitivity analysis and discuss how Ultra Comp could use this technique in analyzing the three vendor alternatives. Identify and briefly discuss three non-financial considerations that the Ultra Comp team should consider prior to making a recommendation to senior management. Net present value LOS: D. Sensitivity analysis LOS: D. Distinguish among sensitivity analysis, scenario analysis, etc. Stages of capital budgeting LOS: D. The estimated economic life of the equipment is 6 years.

Crenshaw is considering the following two options. Morton would be responsible for insurance and property taxes but Crenshaw would be responsible for maintenance. The Financial Analysis Department of Crenshaw realizes that the financial community views leasing as a form of debt financing, and therefore evaluates the lease vs. Should Crenshaw purchase or lease the new equipment? Support your recommendation with calculations that show the net financial advantage. If Crenshaw decides to lease the equipment, should the lease be classified as an operating or a capital lease for financial accounting and reporting purposes? Support your answer. Identify three reasons why firms in general may consider leasing as an alternative to ownership.

Lease financing LOS: B. The majority of the component parts are acquired from a company in Mexico then shipped to the U. Develop the monthly cash flow budget in U. Dollars USD for April, May and June, showing the beginning cash balance, cash receipts, cash disbursements, and the ending cash balance for each month. Use the spreadsheet to enter your responses. Identify and discuss the potential impact of currency fluctuations on receipts and cash disbursements that Chargrille is exposed to based on the calculations you made in question A. Dollar is expected to appreciate or depreciate during the second quarter relative to the: 1. Canadian Dollar 2. Mexican Peso D. Identify and discuss two alternatives available to reduce the foreign exchange rate risk to which Chargrille is exposed.

Impact of foreign operations LOS: A. What is the expected net present value of the investment in this new product? What is the probability that this investment will produce a positive net present value? Corporate financial managers recognize that, in general, new capital investment projects involve a variety of risks, depending on the situation. Identify three techniques or methods that can be used to quantify and assess risk. For each technique identified describe the technique and indicate how it is utilized. In the French sense, a "Malthusian economy" is one in which protectionism and the formation of cartels is not only tolerated but encouraged.

Vladimir Lenin , the leader of the Bolshevik Party and the main architect of the Soviet Union was a critic of Neo-Malthusian theory but not of birth control and abortion in general. The rapid increase in the global population of the past century exemplifies Malthus's predicted population patterns; it also appears to describe socio-demographic dynamics of complex pre-industrial societies. These findings are the basis for neo-Malthusian modern mathematical models of long-term historical dynamics. There was a general "neo-Malthusian" revival in the mid-to-late s, continuing through to the s after the publication of two influential books in Fairfield Osborn 's Our Plundered Planet and William Vogt 's Road to Survival.

During that time the population of the world rose dramatically. Many in environmental movements began to sound the alarm regarding the potential dangers of population growth. His essay, "The Tragedy of the Commons", argued that "a finite world can support only a finite population" and that "freedom to breed will bring ruin to all. The report and the organisation soon became central to the neo-Malthusian revival. Ehrlich has been one of the most prominent neo-Malthusians since the publication of The Population Bomb in Leading ecological economist Herman Daly has acknowledged the influence of Malthus on his concept of a steady-state economy.

America's Decision: Who Will Survive? The neo-Malthusian revival has drawn criticism from writers who claim the Malthusian warnings were overstated or premature because the green revolution has brought substantial increases in food production and will be able to keep up with continued population growth. Responding to Simon, Al Bartlett reiterates the potential of population growth as an exponential or as expressed by Malthus, "geometrical" curve to outstrip both natural resources and human ingenuity. Prominent neo-Malthusians such as Paul Ehrlich maintain that ultimately, population growth on Earth is still too high, and will eventually lead to a serious crisis.

From approximately to , concerns about "peak oil" and other forms of resource depletion became widespread in the United States, and motivated a large if short-lived subculture of neo-Malthusian "peakists". The effects of global warming floods, droughts, and other extreme weather events are expected to negatively affect food production, with different impacts in different regions. Research indicates that technological superiority and higher land productivity had significant positive effects on population density but insignificant effects on the standard of living during the time period 1— AD.

In Classical Athens in about BC, the corresponding wage could buy about 24 pounds of wheat. In England in AD the wage was about 13 pounds of wheat. In Britain between and , only relatively minor fluctuations from the mean less than a factor of two in real wages occurred. Following depopulation by the Black Death and other epidemics, real income in Britain peaked around — and began declining until the British Agricultural Revolution.

He says that "the observed improvement in living standards of the laboring population was rooted in the suffering and premature death of tens of millions over the course of several generations. Robert Fogel published a study of lifespans and nutrition from about a century before Malthus to the 19th century that examined European birth and death records, military and other records of height and weight that found significant stunted height and low body weight indicative of chronic hunger and malnutrition. He also found short lifespans that he attributed to chronic malnourishment which left people susceptible to disease. Lifespans, height and weight began to steadily increase in the UK and France after Fogel's findings are consistent with estimates of available food supply.

Evidence supporting Malthusianism today can be seen in the poorer countries of the world with booming populations. In East Africa specifically, experts say that this area of the world has not yet escaped the Malthusian effects of population growth. He argues that Rwanda "illustrates a case where Malthus's worst-case scenario does seem to have been right. Diamond claims that this environment is what caused the mass killings of Tutsi and even some Hutu Rwandans. Some researchers contend that a British breakout occurred due to technological improvements and structural change away from agricultural production, while coal, capital, and trade played a minor role. This in turn led to sustained "downward mobility": the descendants of the rich becoming more populous in British society and spreading middle-class values such as hard work and literacy.

After World War II , mechanized agriculture produced a dramatic increase in productivity of agriculture and the Green Revolution greatly increased crop yields, expanding the world's food supply while lowering food prices. In response, the growth rate of the world's population accelerated rapidly, resulting in predictions by Paul R. Ehrlich , Simon Hopkins, [59] and many others of an imminent Malthusian catastrophe. However, populations of most developed countries grew slowly enough to be outpaced by gains in productivity.

By the early 21st century, many technologically-developed countries had passed through the demographic transition , a complex social development encompassing a drop in total fertility rates in response to various fertility factors , including lower infant mortality , increased urbanization , and a wider availability of effective birth control. On the assumption that the demographic transition is now spreading from the developed countries to less developed countries , the United Nations Population Fund estimates that human population may peak in the late 21st century rather than continue to grow until it has exhausted available resources.

Empirical estimates show that public policy taxes or the establishment of more complete property rights can promote more efficient consumption and investment that are sustainable in an ecological sense; that is, given the current relatively low population growth rate, the Malthusian catastrophe can be avoided by either a shift in consumer preferences [ example needed ] or public policy that induces a similar shift. Karl Marx and Friedrich Engels argued that Malthus failed to recognize a crucial difference between humans and other species. In capitalist societies, as Engels put it, scientific and technological "progress is as unlimited and at least as rapid as that of population". Henry George in Progress and Poverty criticized Malthus's view that population growth was a cause of poverty, arguing that poverty was caused by the concentration of ownership of land and natural resources.

George noted that humans are distinct from other species, because unlike most species humans can use their minds to leverage the reproductive forces of nature to their advantage. He wrote, "Both the jayhawk and the man eat chickens; but the more jayhawks, the fewer chickens, while the more men, the more chickens. Eversley observed that Malthus appeared unaware of the extent of industrialization, and either ignored or discredited the possibility that it could improve living conditions of the poorer classes. Barry Commoner believed in The Closing Circle that technological progress will eventually reduce the demographic growth and environmental damage created by civilization.

He also opposed coercive measures postulated by neo-malthusian movements of his time arguing that their cost will fall disproportionately on the low-income population who is struggling already. Ester Boserup suggested that expanding population leads to agricultural intensification and development of more productive and less labor-intensive methods of farming. Thus, human population levels determines agricultural methods, rather than agricultural methods determining population.

Environmentalist Stewart Brand summarized how the Malthusian predictions of The Population Bomb and The Limits to Growth failed to materialize due to radical changes in fertility: [67]. The inflection point showed that the imagined soaring J-curve of human increase was instead a normal S-curve. The growth rate was leveling off. No one thought the growth rate might go negative and the population start shrinking in this century without an overshoot and crash, but that is what is happening. Short-term trends, even on the scale of decades or centuries, cannot prove or disprove the existence of mechanisms promoting a Malthusian catastrophe over longer periods.

However, due to the prosperity of a major fraction of the human population at the beginning of the 21st century, and the debatability of the predictions for ecological collapse made by Paul R. Ehrlich in the s and s, some people, such as economist Julian L. Simon and medical statistician Hans Rosling questioned its inevitability. Joseph Tainter asserts that science has diminishing marginal returns [69] [ incomplete short citation ] and that scientific progress is becoming more difficult, harder to achieve, and more costly, which may reduce efficiency of the factors that prevented the Malthusian scenarios from happening in the past.

The view that a "breakout" from the Malthusian trap has led to an era of sustained economic growth is explored by " unified growth theory ". In particular, Oded Galor and Omer Moav argue that the forces of natural selection during the Malthusian epoch selected beneficial traits to the growth process and this growth enhancing change in the composition of human traits brought about the escape from the Malthusian trap, the demographic transition, and the take-off to modern growth. From Wikipedia, the free encyclopedia. Idea about population growth and food supply. An Essay on the Principle of Population. Chapter VII, p.

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