Unit 16 Flashcards

1
Q

Introducing new technology can earn firms

A

schumpeterian innovation rents, firms who fail to innovate are unable to sell product above cost of production = creative destruction
- new tech requires new machines, accumulation of capital is a necessary condition for the advancements
- Technological advance is required.

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2
Q

Productivity model

A

Capital equipment x axis, output per worker y axis
- average product of capital = Y/K
- marginal product of capital at A = change in Y/ change in K

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3
Q

Technological process has lead to

A

every level of capital equipment providing higher level of output per worker.
- also is diminshing marginal product of capital
- tech progress shifted the production function up: stimulated by the prospect of innovation rents

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4
Q

Offset the DMR to capital:

A

capital productivity, measured by the slope of a ray from the origin, remained roughly constant over time in the technology leaders.
- tech progress plays crucial role in preventing diminishing returns from ending long run improvement in living standards resulting from the accumulation of capital goods

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5
Q

Beveridge curve

A

Beveridge noticed that when unemployment was high, vacancy rate was low; and when unemployment was low, the vacancy rate was high

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6
Q

Beveridge curve during recessions

A

there will be high unemployment: when the demand for a firm’s product is declining or growing slowly, firms can manage with their current staff even if a few of them quit or retire. As a result, they advertise fewer positions. In the same conditions of weak demand for firm’s products, people will be laid off or jobs entirely eliminated

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7
Q

During boom Beveridge curve

A

unemployment will decline: number of vacant jobs posted by firms increases, more workers employed to cope with rising demand for products

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8
Q

Determinants of economic performance in the long run

A
  • work inventives
  • Investment incentives
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9
Q

Markup/ firm model

A

X axis = markup
Y axis = number of firms

Downward sloping straight line, if markup is above equilibrium, attracts firms to enter, extension along line until equilibrium
- if markup below equilibrium, firms leave, until equilibrium.

As markup falls - real wage rises.

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10
Q

How can business conditions affect the markup model

A

if business conditions rise, if expropriation falls - lower markup to convince u as a firm to enter the industry, so red line shifts down, number of equilibrium firms increases

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11
Q

What lowers the markup at which entry and exit are 0 - equilibrium point

A
  • higher competition
  • Lower risk of expropriation of owners in home economy
  • Higher quality environment for doing business
  • Lower expected long run tax rate
  • Lower opportunity cost of capital, e.g. a lower interest rate on bonds
  • Lower expected profits on foreign investments
  • Lower expected long terms cost of imported materials
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12
Q

Better tech

A

= better output = higher price setting curve as real wages

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13
Q

New technology shifts up output per worker and price setting curve process

A

A-D: introduction of new tech leads to a rise in unemployment
D-E: high profits encourage new firms to enter
E-B: lower unemployment leads to rising real wages
B: new long run rate of unemployment is 4%

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14
Q

What is the innovation diffusion gap

A

How quickly new tech spreads between firms
- firms
- unions
- associations of owners
All affect

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15
Q

Impact of new tech on income inequality

A
  • initially increases inequality but final is decreased inequality as employment rises
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16
Q

Shift of people from working in goods to services

A
  • productivity in some services reduces the shift
  • substitution of goods for services reduces the shift
  • an increase in relative demand for services increases the shift
17
Q

Technological progress played a crucial role in preventing

A

Diminishing returns from ending the LR improvement in living standards resulting from the accumulation of capital goods.

18
Q

Explanation for beveridge curve

A

When unemployment is lower more labour matching, more information, skills required is also a factor

19
Q

Employment and wage adjustment gap

A
  • also affect speed of reaching new equilibrium
  • gov policy, product market regulation, competition policy
20
Q

X axis = capital per worker
Y axis = output per worker
Tech progress can make investment in a more capital-intensive tech in home economy more profitable than other uses

A

True
- by raising MP of capital at a given K/N, new tech makes return to investment in more capital intensive tech at home more attractive.

21
Q

X axis = capital per worker
Y axis = output per worker
Slope of ray from origin to prod function is steeper when capital output ratio is lower

A

True
- slope of ray is Y/K, so a steeper ray implies higher Y/K, which means a lower capital: output ratio
- steeper means more output per unit capital, so means lower capital per unit output

22
Q

It is not possible to show higher labour prod is associated with a more capital-intensive tech using a single production function

A

False
- possible as shown by movement to right along a single concave production function from a lower to higher level of output per worker

23
Q

Beveridge curve will shift downward if

A
  • information about job vacancies improves
  • unemployment benefits become less closely tied to the wage and occupation of an unemployed person’s previous job.