Additional heory

Question 1

Paul Samuelson’s contribution

Answer 1

Modern static economic modelling based on economy always converging on equilibria
No divergence as economic agents prevent it

Question 2

HOS trade theory

Answer 2

By liberalising 2 markets ‘factor price equalisation can be achieved’ as free movement of FOP will lead to LR net balance

Question 3

Stopler-Samuelson theorem

Answer 3

Rise in PL of good leads to rise in PL of FOP

Question 4

Critique of HOS

Answer 4

Model predictions correlating high capital stock with capital intensive export focus is not observed
Problem is fundamental to measuring capital

Question 5

Kenneth arrow- impossibility theorem

Answer 5

Impossible to achieve a consistent socially optimum decisions due to conflict in individual utility from preferences

Question 6

Arrow and Bebreu

Answer 6

Economic instability could be due to price being ineffective indicator on future
This = uncertainty on value of assets, inability to achieve correct amount of investment

Question 7

Arrow economics of information (3)

Answer 7

Moral hazard
Adverse selection
Trade based on trust can be best method

Question 8

Amartya Sen

Answer 8

People’s rights equally important as income in influencing welfare (govt lobby)

Question 9

Growth theory

Answer 9

Technical and organisational change drive a prosperous cycle

Question 10

Solow’s model

Answer 10

rate of capital + output growth= rate of exogenous growth

But 60% of growth remains residual (unaccounted for)

Question 11

Mazzucato- The entrepreneurial state

Answer 11

State has an important role in supporting high risk innovation