Unit 2

Question 1

improvement in tech?

Answer 1

leads to growth in living standards

Question 2

innovation?

Answer 2

creates rewards for inventor, incentives for improvements that reduce costs

rewards are destroyed by competition once they also recevie new innovation

Question 3

equilibrium?

Answer 3

flactuates, but always return to normal
something of interest doesn’t change unless an outside or external force is introduced, self-perpetuating

Question 4

reasons for models?

Answer 4

test economic theories
causation
forecasting

Question 5

subsistence level?

Answer 5

to meet bare necessity

Question 6

Malthusian’s theory?

Answer 6

despite the gains of technological advances, in particular income per capita rising, nations will never be able to sustain increasing incomes per capita
He proposed that as people’s invome increases, they will have a desire to have more children as affordability within the household increases
Eventually population growth will outstrip resources and living standards will decrease which will then lead to a halt in the population growth

was proven wrong because tech allowed us to escape the Malthusian’s trap

Question 7

more pressure to sustain new population growth?

Answer 7

will flactuate back to normal (equilibrium)

Question 8

diminishing average product of labour?

Answer 8

average product of labour = total output/ total number

factors of productions are inputs

population increases when average product exceeds product of labour

Question 9

Malthus two main ideas?

Answer 9

1. law of diminishing average product of labour
2. ppopulation exxpands if living standards increase

Question 10

two variables stay in equilibrium in malthus model?

Answer 10

size of population and income level (fluctuate around the subsistence level if consumption)

Question 11

3 conditions required to stay in Malthusian trap?

Answer 11

• diminishing average product of labour
• rising population in response to increases in wages
• absence of permanent improvements in tech to offset the diminishing avereage product of labour

Question 12

Why was Britian able to escape the Malthusian trap?

Answer 12

• average product of labour grew faster than population
• improvement in healthcare/ sanitation
• slower population growth

(third condition required to stay in trap no longer held)

Question 13

ceteris paribus?

Answer 13

holding all other things constant

Question 14

incentives matter?

Answer 14

choosing the best for the business, maximising profits by choosing best inputs

Question 15

relative prices?

Answer 15

ratio in comparison with different product

Question 16

economic rent?

Answer 16

benefit from option taken (benefit from next best option)i

Question 17

innovation rent?

Answer 17

profits made in excess to those offered due to adoption of new technology

Question 18

isocost line?

Answer 18

line that represents all combinations that cost a given total amount

cost calc: (wage x workers) + (price x number)