Unit 2 - Technological Change, Population and Economic Growth

Question 1

Malthusian Economics + The Malthusian Trap

Answer 1

• A sustained increase in income per capita would be impossible
• Mathusian trap - tech improvement leads to an increase in population which leads to a crisis which creates poverty again

Question 2

How do we escape the Malthusian trap?

Answer 2

• Private property - economic rent received by private entities serves as an incentive to develop
• Markets - force innovation and maintain competition
• Firms - which have a goal to expand, and production is done through the firm, not the government

Question 3

Innovation Rent

Answer 3

= the profits received as a result of finding an innovative way to reduce production costs that others cannot reproduce in order to match your price

• innovation rents do not last forever - companies will adapt

Question 4

Isocost line - definition and formula

Answer 4

Isocost line = a line along which all the combinations of workers and inputs cost the same amount
c = (wage x nr. of workers) + (price of input x amount of input)
*the formula can be rearranged to solve for R (amount of input)

Question 5

Slope of Isocost line

Answer 5

slope = wage/price of input

Question 6

Equation for profit

Answer 6

Profit = revenue - costs

Question 7

Production function - definition

Answer 7

= the amount of output that will result for one or more combinations of input

Question 8

Average product of labour - formula

Answer 8

average product of labour = total output/total number of workers

Question 9

Diminishing average product of labour

Answer 9

Increasing one input (employing more workers) in the production process while other inputs remain constant will lead to a decrease in average product of labour. As each new unit of labour is added, the marginal output gets smaller.

Question 10

The conditions for the Malthusian trap

Answer 10

• Diminishing average product of labor
• Rising population in response to increases in wages
• An absence of improvements in technology to offset the diminishing average product of labor
• the Malthusian model is no longer relevant because of the permanent technological revolution