Econ II Final Flashcards
Session 7
What is poverty?
Living under a certain income threshold.
- Commonly expressed in absolute terms (eg. $1.9/day wage World Bank)
- Poverty headcount ratio: share of people below poverty line.
Session 7
What is inequality?
Relative measure of the distribution of income.
Session 7
Lorenz Curve
Plots the income of individuals in an ascendant way, similar to a cumulative distribution function.
Equal distribution - straight line
Unequal distribution - curved line
Session 7
Gini Coefficient
Measures the degree of inequality within a population in a specific country.
Equality expressed as G = 0
Inequality expressed as G = 1
Session 7
Gini Formula
G = a / (a + b)
How far the Lorenz curve falls from the ‘line of equality’
Session 7
Why has inequality increased since 1970s?
Technological change: technology can be used to make processes more efficient and replace low-skilled labor.
Globalization: trade/foreign investment make low-skill labor compete globally, depressing OECD-low skilled wages.
Session 7
Where is inequality reflected other than income?
In people’s outcomes (eg. health, education, lifetime mobility), but it is harder to estimate.
Session 8
What is social welfare?
It refers to the aggregated well-being of a group of people, reflected in utility.
Cardinal - Comparable and measurable individually
Ordinal - Observable by preferences (in decisions)
Session 8
Arrow’s Paradox
Social welfare is the aggregation of individual preferences.
- Cardinal utility is necessary to construct a social welfare function.
- Ordinal utility (preference rankings) is insufficient.
Session 8
GDP vs. Wealth
GDP (flow) is an estimate to measure economic acvitiy.
Wealth (stock) refers to produced, natural or intangible capital.
Session 8
Genuine Wealth
The sum of physical, human and natural capital.
𝜔 = 𝐾 + 𝐻 + 𝑅
Session 8
Genuine Savings
The net change of wealth w.
∆𝜔 = ∆𝐾 + ∆𝐻 + ∆𝑅
Session 8
HDI
An index to quantify human development (welfare), reflected in:
- GNI, schooling, life expectancy
- Washington Consensus vs. SDGs
Session 8
Easterlin Paradox
Income is not correlated with happiness in time series data.
Happiness stops increasing once a certain income level is crossed (Kahneman).
Some evidence exists for relative income, can adapt to changes at the individual level.
Session 9
Greenhouse Effect
It is a natural mechanism that warms up the planet, but that is exacervated by human activity (eg. energy emissions leading to more warmth absorbtion).
Session 9
Waves
Short - Visible light
Long - Heat absorbed by planet, reflected and emitted in all directions
Session 9
Emissions Process
CO2 concentration ->
radiating forcing ->
global rise of temperature
… ultimately leading to physical changes and impacts
Session 9
Climate Sensitivity
Change in global mean temperature in response to the global mean force (radioactive forcing).
Session 9
ΔF
Radioactive Forcing
ΔF = 5.35 * ln * (c/280 )
in W/m2
Session 9
ΔT
Change in Temperature
ΔT = 𝜑*Δ𝐹
𝜑 = 0.8 ± 0.4
Session 9
CO2 absorbtion
Oceans
Earth
Atmosphere
…but today, human activity has made the amount of CO2 absorbed by the atmosphere to be disproportionate.
Session 9
Tipping Point
Melting Greenland/Antarctic Icesheets
Increase in sea levels, then temperature changes as there are fewer albedo processes (heat is being absorbed, not reflected).
Session 12
De-growth
A reduction of overall consumption.
“Limits of Growth” argues that environmental limits could cause the collapse of the world economy by the 21st century, then lead to mass starvation.
LH: De-coupling growth from resources (based on Ramsay)
Session 12
DHSS model
Model for resource economics based on the capital stock accumulation from Ramsay that acknowledges producing outputs requires limited stock (depletion).
Eg. extracting now vs. extracting later
Long-term growth depends on substitutability of two factors of production (H, K).
Session 12
Hotelling Rule
The price of a resource should increase exponentially, at the rate of r (refers to an optimal extraction path).
Dp/p = r
Session 12
Sustainab(ility)
“Development that meets the needs of the present without compromising the ability of future generations to meet their needs” (Brandtland Commission, 1987)
Intertemporal welfare must not decline over time
Wt > 0 (capital W) - recall
Session 12
Hartwick Rule
**Invest resource rents in reproducible capital (H, K) **that acts as substitute to current consumption.
1 - a - B
If marginal contribution of capital (a) is larger than marginal contribuion of extraction of resources (B), all rents should be inevested in H, K
Session 12
Weak / Strong Sustainability
Weak - assumes resources may be substituted by produced capital eg. Hartwick
Strong - assumes resources cannot be substituted indefinitely, calls for “guardrails” as lower limits
