Introduction, History of Growth, Institutions

Question 1

what are institutions?

Answer 1

the laws and informal rules that regulate social interactions among people and between people and the biosphere,

Question 2

what is an economic system?

Answer 2

a way of organizing the economy that is distinctive in its basic
institutions.

Question 3

what is capitalism?

Answer 3

an economic and political system in which a country’s trade and industry are controlled by private owners for profit

Question 4

what is private property?

Answer 4

something is private property if the person possessing it has the right to exclude others from it, to benefit from the use of it, and to exchange it with others.

Question 5

what is a market?

Answer 5

a way that people exchange goods and services by means of directly reciprocated transfers (unlike gifts) and are voluntarily entered into for mutual benefit
(unlike theft, taxation),

Question 6

capitalism led to a growth in living standards because of?

Answer 6

-impact on technology
-specialisation

Question 7

what does specialisation do?

Answer 7

increases productivity of labour because we become better at producing things when we each focus on a limited range of activities

Question 8

what do markets contribute to?

Answer 8

increasing the productivity of labour by allowing people to specialise

Question 9

what is capitalism’s main fault?

Answer 9

the drive to maximise profits can have terrible
consequences for other people

Question 10

what does a production function give?

Answer 10

maximum output for a given set of inputs

Question 11

what is the law of diminishing average product of labour?

Answer 11

If we hold one input (land) fixed, and expand the other input (labour), the average output per worker is going to fall

Question 12

what are the key ideas of Malthus’ Model

Answer 12

1. Population expands if living standards increase
2. But the law of diminishing average product of labour implies that as more people work on the land, their income will inevitably fall

Question 13

in equilibrium, living standards will be forced down to what?

Answer 13

subsistence level

Question 14

what are the 3 conditions required to stay in the Malthusian trap?

Answer 14

• Diminishing average product of labour
• Rising population in response to increases in wages
• An absence of improvements in technology to offset the diminishing average product of labour