Unit 2 - Technology, Population and Growth Flashcards
How do you calculate average product of labour?
average product of labour = total output/total number of workers (e.g. farmers)
How is cost calculated?
cost = (wage×workers)+(price of a tonne of coal×number of tonnes)=(𝑤×𝐿)+(𝑝×𝑅)
How is profit change in profit from switching from B to A calculated?
revenue – costs = change in revenue − change in costs
How is the economic rent calculated?
economic rent=benefit from option taken−benefit from next best option
(when taking some action (call it action A) results in a greater benefit to yourself than the next best action, we say that you have received an economic rent)
The Malthusian model predicts that improvements in technology will not raise living standards if:
the average product of labour diminishes as more labour is applied to a fixed amount of land
population grows in response to increases in real wages
The story of the permanent technological revolution demonstrates that there are two influences on wages:
How much is produced: we can think of this as the size of the pie to be divided between workers and the owners of other inputs (land or machines).
The share going to workers: This depends on their bargaining power, which in turn depends on how wages are determined (individually, or through bargaining with trade unions, for example) and the supply and demand for workers. If many workers are competing for the same job, wages are likely to be low.
What are relative prices used to explain?
what shoppers (or consumers, as we usually call them) decide to buy why firms make the choices that they do
What are the factors of production?
The labour, machinery and equipment (usually referred to as capital), land, and other inputs to a production process.
What are the two key ideas in Malthus’ model?
the law of diminishing average product of labour
population expands if living standards increase
What can diminishing average product of labour be caused by? (e.g. farmers)
more labour devoted to a fixed quantity of land
more (inferior) land brought into cultivation
What does flow mean?
A quantity measured per unit of time, such as annual income or hourly wage.
What does Malthus’ model(:the effect of an improvement in technology) show?
Equilibrium
What does the term ‘index’ mean?
The value of some quantitative amount relative to its value at some other time (the reference period) which is usually normalized to 100.
What four attributes does a good model have?
It is clear: It helps us better understand something important.
It predicts accurately: Its predictions are consistent with evidence.
It improves communication: It helps us to understand what we agree (and disagree) about.
It is useful: We can use it to find ways to improve how the economy works.
What is an entreupener?
A person who creates or is an early adopter of new technologies, organizational forms, and other opportunities.
What is an incentive?
An economic reward or punishment, which influences the benefits and costs of alternative courses of action.
What is an isocost line?
A line that represents all combinations that cost a given total amount.
What is creative destruction?
Joseph Schumpeter’s name for the process by which old technologies and the firms that do not adapt are swept away by the new, because they cannot compete in the market. In his view, the failure of unprofitable firms is creative because it releases labour and capital goods for use in new combinations.
What is equilibrium?
A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model’s description of the situation.
What is evolutionary economics?
An approach that studies the process of economic change, including technological innovation, the diffusion of new social norms, and the development of novel institutions.
What is the ceteris paribus?
Economists often simplify analysis by setting aside things that are thought to be of less importance to the question of interest. The literal meaning of the expression is ‘other things equal’. In an economic model it means an analysis ‘holds other things constant’.
What is the diminishing average product of labour?
A situation in which, as more labour is used in a given production process, the average product of labour typically falls.
What is the economic rent?
A payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option).
What is the production function?
This describes the relationship between the amount of output produced and the amounts of inputs used to produce it. (e.g. This indicates the amount of output produced by any given number of farmers working on a given amount of land.)
What is the relative price?
The price of one good or service compared to another (usually expressed as a ratio).
What is the reservation option?
A person’s next best alternative among all options in a particular transaction.
What is the subsistence level?
The level of living standards (measured by consumption or income) such that the population will not grow or decline.
What made countries escape the Malthusian Trap?
The Industrial Revolution
What variables stay constant in the equilibrium in Malthus’s model?
the size of the population
the income level of the people
When is an outcome dominated?
We describe an outcome in this way if more of something that is positively valued can be attained without less of anything else that is positively valued. In short: an outcome is dominated if there is a win-win alternative.
When we study the way that a capitalist economic system promotes technological improvements, we will look at how changes in wages affect firms’ choice of technology. For the simplest possible model we ‘hold constant’ other factors affecting firms. So we assume:
Prices of all inputs are the same for all firms.
All firms know the technologies used by other firms.
Attitudes towards risk are similar among firm owners.
