2 - Technology, population, and growth Flashcards
How did the UK escape Malthus’ trap?
- Industrial Revolution (general-purpose innovation)
Why did the industrial revolution happen in the UK?
- High cost of labour
- Low cost of local energy sources
- Enlightenment (allowed elite scientific knowledge to be made into practical use)
- Non-European countries favoured stabilty over change for cultural/social reasons
1) Robert Allen (economic historian)
2) Joel Mokyr
3) David Landes
How did Landes suggest the reasons for the West being rich and East being poor?
“We are so good and they are so bad; we are hardworking, knowledgeable etc. and they are not.
Or, we are so bad and they are so good; we are greedy, ruthless, exploitative, while they are weak, innocent etc.”
What does an equilibrium situation mean?
The situation does not change unless an outside/external force for change is introduced.
What are the four attributes of a good economic model?
- It is clear
- It predicts accurately
- It improves communication
- It is useful
What are the four key ideas of economic modelling?
- Ceteris paribus
- Incentives matter
- Relative prices
- Economic rent
What does ceteris paribus mean?
Holding other things equal.
More generally:
* Prices of inputs are the same for all firms
* All firms know the technology used by other firms
* Attitudes towards risk are similar amongst firm owners
Which of these technologies dominates the other?
A dominates C.
B dominates D.
E dominates nothing.
If A is available, nobody would choose C.
If B is available, nobody would choose D.
How would a firm choose between each of these manufacturing techniques?
Assuming a firm looks to maximise profits, you minimise costs.
Cost = (wage x workers) + (price of coal x tonnes)
How do you calculate an isocost line?
Draw a line between points where the cost is equal.
Which iso-cost curve do firms choose?
The lowest one (i.e. cheapest)
What is the slope of an isocost line?
-(w/p)
What is creative destruction?
Old firms and technologies who do not adapt to cost-saving innovation go bankrupt.
It frees up labour and capital to be used in more efficient and profitable firms.
What happens if an iso-cost curve is steep?
The relative price of labour to energy is high, so firms will innovate move from B to A to produce goods.
Why did firms want to innovate in the UK?
The cost of labour was very high relative to the price of energy.
Why did France not have the same incentives as the UK to innovate?
The price of labour relative to energy was quite low.
Why does the average product of labour fall?
- More labour devoted to a fixed quantity of land
- More inferior land used for cultivation
Why was Malthus worried about the diminishing average product of labour?
Total labour inputs would increase, therefore reducing the overall output.
He was worried it could lead to starvation.
What were the two key ideas in Malthus’ model?
- The law of diminshing average product of labour
- Population expands if living standards increase
Why did Malthus think populations expand when living standards increase?
Regarded people as not that different from other animals:
* When people have better living conditions, they reproduce more
* Eventually, too many people relative to fixed land causes living standards to fall as the population increases in size.
Essentially, when living standards are below subsistence, population falls. When living standards are above subsistence, population increases.
What does Malthus’ model result in?
Equilibrium where there is an income level just sufficient to allow a subsistence level of consumption.
What variables stay constant in Malthus’ equilibrium?
- Size of the population
- Income level of people
How does Malthus’ model account for improvements in technology?
- Population constant
- Tech. improves
- Average output per farmer rises
- Farmer income rise
- Population rises
- Less land per farmer
- Average output per farmer falls
- Farmers’ incomes fall
- Population constant at higher level (until new tech.)
Why does the Malthusian model sometimes believe that improvements in technology will not raise living standards?
- The average product of labour diminishes as more labour is applied to a fixed amount of land
- Population grows in response to increases in real wages
