Unit 2 - Technology, Population and Growth

Question 1

How do you calculate average product of labour?

Answer 1

average product of labour = total output/total number of workers (e.g. farmers)

Question 2

How is cost calculated?

Answer 2

cost = (wage×workers)+(price of a tonne of coal×number of tonnes)=(𝑤×𝐿)+(𝑝×𝑅)

Question 3

How is profit change in profit from switching from B to A calculated?

Answer 3

revenue – costs = change in revenue − change in costs

Question 4

How is the economic rent calculated?

Answer 4

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)

Question 5

The Malthusian model predicts that improvements in technology will not raise living standards if:

Answer 5

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

Question 6

The story of the permanent technological revolution demonstrates that there are two influences on wages:

Answer 6

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.

Question 7

What are relative prices used to explain?

Answer 7

what shoppers (or consumers, as we usually call them) decide to buy 
why firms make the choices that they do

Question 8

What are the factors of production?

Answer 8

The labour, machinery and equipment (usually referred to as capital), land, and other inputs to a production process.

Question 9

What are the two key ideas in Malthus’ model?

Answer 9

the law of diminishing average product of labour

population expands if living standards increase

Question 10

What can diminishing average product of labour be caused by? (e.g. farmers)

Answer 10

more labour devoted to a fixed quantity of land

more (inferior) land brought into cultivation

Question 11

What does flow mean?

Answer 11

A quantity measured per unit of time, such as annual income or hourly wage.

Question 12

What does Malthus’ model(:the effect of an improvement in technology) show?

Answer 12

Equilibrium

Question 13

What does the term ‘index’ mean?

Answer 13

The value of some quantitative amount relative to its value at some other time (the reference period) which is usually normalized to 100.

Question 14

What four attributes does a good model have?

Answer 14

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.

Question 15

What is an entreupener?

Answer 15

A person who creates or is an early adopter of new technologies, organizational forms, and other opportunities.

Question 16

What is an incentive?

Answer 16

An economic reward or punishment, which influences the benefits and costs of alternative courses of action.

Question 17

What is an isocost line?

Answer 17

A line that represents all combinations that cost a given total amount.

Question 18

What is creative destruction?

Answer 18

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.

Question 19

What is equilibrium?

Answer 19

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.

Question 20

What is evolutionary economics?

Answer 20

An approach that studies the process of economic change, including technological innovation, the diffusion of new social norms, and the development of novel institutions.

Question 21

What is the ceteris paribus?

Answer 21

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’.

Question 22

What is the diminishing average product of labour?

Answer 22

A situation in which, as more labour is used in a given production process, the average product of labour typically falls.

Question 23

What is the economic rent?

Answer 23

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).

Question 24

What is the production function?

Answer 24

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.)

Question 25

What is the relative price?

Answer 25

The price of one good or service compared to another (usually expressed as a ratio).

Question 26

What is the reservation option?

Answer 26

A person’s next best alternative among all options in a particular transaction.

Question 27

What is the subsistence level?

Answer 27

The level of living standards (measured by consumption or income) such that the population will not grow or decline.

Question 28

What made countries escape the Malthusian Trap?

Answer 28

The Industrial Revolution

Question 29

What variables stay constant in the equilibrium in Malthus’s model?

Answer 29

the size of the population

the income level of the people

Question 30

When is an outcome dominated?

Answer 30

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.

Question 31

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:

Answer 31

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.