Lecture 14: Economic flow constraints

Question 1

What are the constraints in economic flow?

Answer 1

• Resources - limit to materials
• Social mechanics - require a stable society
Human psychology - limits to behaviour

Question 2

What are the constraints in the systems of economy?

Answer 2

• Traditional economy
  =>climate/population - ecology (change rapid with climate etc.)
  => slow to respond - human psychology (don’t handle change well)
  
  • Command economy
    => Control and planning/ people - human psychology (don’t always do what we’re told)
    => Complex system - knowledge
  • Free market
    => stable equilibrium - resource supply and demand change, throwing markets off equilibrium
    => more interested in maximising individual benefit - human psychology (selfish)
  • Mixed economy
    => collapse of USSR (command) , 2008 financial crisis (Free market), collapse of ways of life (traditional)

Question 3

What are the constraints of economy as a flow?

Answer 3

• Consumption spending = resources (consuming without limit?)
  
  • Savings = psychology (save enough to fund future? Or spend)
    Financial organisations/gov/businesses = stability

Question 4

What are the limits to growth?

Answer 4

• Meadows - Limit to growth book => growth limits reached soon, result in uncontrollable decline in pop and industrial capacity
1972 models predicted accurately what would happen in next three decades