unit 1 Flashcards
what is GDP
This is the most common measure for the size of an economy
It measures the value of the total output of goods and services produced by that economy in a certain period of time
GDP tells us how big the total output of a country is
GDP per capita tells us how large each person’s slice of that output is
if everyone received the same amount
why is GDP an incomplete measure
- it doesn’t tell us how income is distributed
- doesn’t count unpaid labour
- The failure to count the depletion of our natural
surroundings - does not indicate average living standards
what is GDP per capita
GDP/total population = GDP per capita (measures average income and living standards)
what is the continuous technological revolution
New technologies emerged in textiles, energy and
transportation which themselves became obsolete quite
quickly.
This period of cumulative innovation is called the Industrial
Revolution.
what is technology
Technology is a process that takes a set of inputs and creates
an output.
use the malthus model to explain the flat part of the hockey stick
A simple model in which food is produced using only labour and land.
* Labour and land are the factors of production in the model: the inputs into the production process.
* The relationship between the inputs to a production process and the
amount of output is given by a production function.
* Malthus believed that in agriculture there was a diminishing average
product of labour meaning if there is a fixed quantity of land, then average output per worker falls as more workers are added.
how to calculate average product of labour
total output / total number of farmers
how did malthus link population and living standards
When people were well-fed they would multiply.
* Population expands if living standards increase.
* Further population growth would push down incomes as a result of diminishing average product of labour.
* Falling living standards would slow population growth.
* Ultimately incomes would settle at a subsistence level. This is a level of income where the population remains constant
over time
arrow explanation of the malthus model
living standards are low. technology imporves –>
average output per farmer rises –>
population rises –>
less land per farmer–>
average output per farmer falls –>
population is larger but living standards are back to the original level
what makes a point on a graph equilibrium
An equilibrium is a
point where there is
no tendency to
change unless
something else in
the economy
changes.
what is capitliasm
Capitalism is an economic system characterised by a
particular combination of institutions.
Capitalism combines centralisation with decentralisation. Power is concentrated in the owners and managers hands of firms who can cooperate with a large number of employees in the production process. Power of owners is limited due to competition in markets.
what are institutions
Institutions: the laws and informal rules that regulate social
interactions among people and between people and the
biosphere.
what is an economic system
Economic system: a way of organizing the economy that is
distinctive in its basic institutions.
what is a centrally planned economic system
when the government owns the means of production, deciding what to produce, who to produce for and how to produce.
what are slave economies
where most of the work is done by people who are not hired for wages
what is a capitalist economic system made of (3)
- private property
- markets
- firms
what is private property, markets and firms
Private property - the right to enjoy personal possessions in the way you choose
Markets - connect people who mutually benefit by exchanging goods and services through buying and selling
Firms - a way of organising production by combining inputs to produce an output
why do firms need market and private property to function
- Outputs and capital goods and private property
- Firms use markets to buy inputs and sell outputs
what are firms
Firms = business organization that uses inputs to produce
outputs, and sets prices to at least cover production costs.
* Inputs and outputs are private property
* Firms use markets to sell outputs
* The aim is usually to make profit
- firms can quickly be born and expand then contract and die
what did capitlaism bring that raised living standards
- Technology
- Specialisation - division of labour
firms had higher incentives to adopt and develop more productive technologies and to invest in capital goods
As firms grew, agriculture was no longer the primary source of income and output. Manufacturing output grew faster and started to account for a larger fraction of output. The proportion of the population engaged in agriculture production fell while the manufacturing shares grew.
capitalism advantages may not occur if: (3)
- Private property is not secured e.g weak law enforcement
- Markets for firms output are not competitive - firms lack incentives to produce efficiently, expand and innovate
- Firms are controlled by people who owe their positions to connections to government or privileged birth.
what is a developmental state
A developmental
state is where the
government plays a
leading role in
economic take-off.
when is capitalism dynamic
Capitalism is dynamic when:
* Private property is secure
* Markets for firms’ output are competitive
* Firms are not controlled by people because of government
connections or privileged by birth
* Markets, private property and firms are all regulated by laws
and policies
* There is a well functioning legal system and government
provides essential goods and services
what did colonisation do to living standards in india
In India, colonization reduced
living standards because:
* Colonial rulers developed
infrastructure for exporting
goods, not for the benefit of
local producers.
* Colonial rulers established
institutions that involved
local elites focusing on
collecting taxes rather than
improving the economy.
what is the eocnomy made of
- physical environment
- biosphere
- society
how can governments address environmental issues
Regulating the amount of
emissions or other
environmental damages
* This regulation can be
done by banning or issuing
a limited number of
permits
