Unit 2 - Technology, Population and Growth

Question 1

What is the cycle of the Malthusian Trap

Answer 1

1. If technology improved and raised the productivity of labour, then people would be temporarily better off
2. People will use the additional income to raise more kids
3. This population growth would continue until living standards fell to subsistence level

Question 2

How did we escape from the Malthusian Trap

Answer 2

1. Technology improves, raising labour productivity
2. Labour productivity rises faster than population growth
3. Incomes rise faster than population

As long as technology continued improving quickly
enough, it could outpace the population growth that resulted from the increased income.

Question 3

What factors stay constant in the Malthusian Trap equilibrium

Answer 3

The per capita income (average income in an area)
Size of the population

Question 4

How did institutions of capitalism encourage technological change

Answer 4

Private property:
- Incentives for firms and individuals to invest in capital goods without fear of it being stolen
- New technology would enable a firm to harvest more economics rent (“carrot)
- Creative destruction means that firms that do not innovate will not be as competitive and be pushed out the market (“stick”)

Question 5

What is the difference between household production and firms

Answer 5

Objective of households is subsistence whereas firms aim to make profit

firms use specialization and innovation to expand production

Question 6

What is creative destructions

Answer 6

The process of replacing older technology with new development

Question 7

What could negative technological shock do to the Malthusian economy

Answer 7

It would lower the population but increase wages (the population wage curve would shift to the left)

Question 8

What is Ceretis Paribus

Answer 8

The idea that all other things are equal or constant

This allows arguments in economic theory and allow outcomes to be measured