chapter 2 - technological change, population and economic growth Flashcards
how are economic models linked to this module?
they help to explain the industrial revolution in britain
what matters when people make economic decisions?
wages, cost of machinery and other prices
what interacts to create a vicious circle of economic stagnation?
population, productivity of labour and living standards
what was thomas malthus’ view?
population grows geometrically and food arithmically and therefore even with technological advances people will still run out of food as population grows at a faster rate than food
pessimistic view of economic progress
what is the industrial revolution?
a time of radical invention that allowed the same output to be produced with less labour
what happened in britain from 1200 to 2000
real wages stayed the same up until 1800 in which this is where britain escaped form the malthusian trap
why do we use model s in economics?
to be able to look at the big picture
cant describe every single detail
how do you create an effective model?
distinguish between the essential features of the economy that are relevant to the question
how are models in economics used?
3 steps
1) built model to capture elements of economy that mattered in terms of question
2) used model to show interaction between elements
3) conduct experiments/gather data that show what happens when you change the economic conditions
what is an equilibrium?
situation in which doesn’t change unless a force for change is introduced that alters the basic data
what is subsistence?
the action of maintaining oneself especially at minimal level
in the malthusian model was is an equilibrium?
wage equal to subsistence
what is the process in which a model is built?
- construe simplified description of the condition under which people take actions
- describe in simple terms what determines the actions people take
- determine how each of their actions affects others
- determine the outcome of these actions
- insight into what happens when condition change
why are mathematics used in models?
- describe models
- ## part of the language of economics
how does a model usually begin?
with assumptions or hypotheses about how people behave
what does ceteris paribus mean and why is it important?
ll other things remain unchanged
it is hard to isolate everything in economics
what is an assumption in how people make choices?
economic rents
in terms of this module what are example of ceteris paribus?
- prices of all inputs in firms are the same
- all firms known technologies in used in others
- attitudes towards risk are similar among firm owners
what is meant by relative prices and why is it important?
ratio of things (not absolute level) the price of one option relative to another
economics focuses on alternatives and choice
characteristic of an economic model
during the industrial revolution what were the prices that mattered to most to inventors and firms?
- energy prices (coal)
- wage rate
- ratio of the two
what is an innovation rent?
a form of economic rent
what is one of the reasons in which capitalism is such a dynamic system?
economic rents
something you would like to gain
in that anyone seeking rent is likley to change price etc
what is the calculation for econmoic rent?
benefit form option taken - benefit fro the next best option
what are the basic institutions of capitalism?
- markets
- firms
- private property
what is meant by a technology?
anything that helps produce someone faster, better or cheaper
producing an output
what can technologies promote?
cost reducing innovation
how do firms decide which technologies to choose?
ones that are inferior to others
can be displayed on a graph
what does making a decision about a technology require?
- making an assumption about the goal of the firm
- relaive prices of hiring workers and purchasing any materials
how do a firm evaluate the cost of production using different technologies?
by working out the cost of all technologies
cost = (wage x workers) + (price of material x amount of material)
what is an isocost line?
line long which all combinations of two factors cost the same amount
how would you work out an isocost line to work out how many people will work and tonnes of coal?
find out how many people could work for £80 and work out how much coal you could by for that much
what will change the slope of an isocast line?
the relative prices of the two inputs
what is an example in which relative prices changed in relation to an isocost line?
industrial revolution
wages rose
how do you work out economic rent?
revenue - cost
why do innovation rents not last forever?
when they first innovate they have little competaition and therefore are gaining the highest economic rent but as others start to innovate in a similar way they lose economic rents
how do cost reducing innovation raise the profits?
as if they are making the same revenue as before there costs will be smaller and therefore economic rent (profit) will increase
this can be worked out on a n isocost line
what is the major difference between pre industrial revolution technologies and post technologies?
old - labour intensive (capital and energy saving)
new - capital intensive (energy intensive and labour saving)
why was there an incentive in Britain to replace workers with machines around the 17th century?
as the price of wages relative to coal and other materials was high
cost reducing innovation
how can the industrial revolution in britain be explained, e.g why did it take place when it did?
in the 16th centre wages ratline to cost of energy and capital goods were higher in britain than elsewhere and this was not the case in earlier centuries
technology grew rapidly ocompated to any other place
what are the factors that lead to the diffusion of technologies across the world?
- further technological progress, take smaller inputs to produce larger outputs
- wage growth and falling energy costs
why was there falling energy costs around the world?
cheaper transportation
how can the flat bit of the hocky stick be explained?
malthus built a new model that helped to explain the stagnation pre industrial revolution that meant that GDP didn’t grow
what is one the most important concepts in economics that helps to explain stagnation?
diminishing average product of labour
how do you work out the average product of labour?
total output / total labour quantity (amount of workers)
what is DAPL?
state that whilst increasing one input and keeping all inputs the same the output will initially increase but further increases will have limited effect and will eventually have no effect or a negative effect of output
how does DAPL occur in relation to technologies?
as population increases there is a need for more food
at the start farmers start growing more initially earning more
as there is more people more food is grown but the average product per worker decreases
how did the stagnated part of the hockey stick end?
improvements in technology allowed more product per worker
real wages started to rise
GDP rises
what was the other reason that explained stagnation?
malthus stated that increased living standards create an increase in population
how is the subsistence level related to malthus population idea?
the idea that if population grows the amount of food will decline per person
it will decline to the point in which population will stop growing as result of lack of food and will remain at the subsistence level
anything below this level will mean they will reduce in size
incomes will settle at SL
what did malthus state about unlimited substance?
if we have US then population will keep growing but eventually fill a country and population growth would push down incomes as a results of DAPL
what is malthus’ model - the effect of a good harvest?
a good harvest leads to rise in farmers income to population rise to less land per farmer to average output falls to farmer income falls and eventually leads back to the equilibrium level
how can malthus’s ideas be linked to technological advances?
the fact that as a new technology increases it will be the same as if foof output rose in the fact that it would still lead to lower income
will increase productivity but not wages
why is the malthusian model not a reasonable description of the world?
due to the permanent technological revolution
emerge living standards increased rapidly and premaantly after the capitalist revolution
