Week 4 LT

Question 1

What are ideas vs objects

Answer 1

Objects are goods we are familiar with

Ideas are instructions or recipes on how to make objects e.g. how to make plastic from crude oil

Question 2

What is rivalry

Answer 2

One person’s use of the good restricts someone elses use of the good e.g. using a phone nobody else can use that phone

Question 3

What is nonrivalry

Answer 3

Use does not restrict someone else using it

Question 4

What is the problem with pure competition in regard to innovation

Answer 4

Perfect competition means goods are sold at MC which will not incentivise companies to spend lots on R&D to innovate as they won’t recover that expense

Question 5

What is the negative consequence of requiring prices to be above MC

Answer 5

there will be consumers who cannot afford the items e.g. drugs from pharma = loss in welfare

Question 6

What are the problems with intellectual property rights for developing countries

Answer 6

e.g. african countries having to pay lots for essential medication which is expensive due to patents instead of violating the patents and producing cheaply to help the population

Question 7

what are the benefits for developing countries to respect intellectual property rights

Answer 7

Doing so may encourage multinational firms to locatte in developing countries and facilitaate the transfer of new technologies etc

Question 8

What are the other ways you caan incentivise innovation

Answer 8

government funding, prizes etc

Question 9

What is the output production function in the Romer Model§

Answer 9

Yt = At x Lyt

Question 10

What is the idea production function in the romer model

Answer 10

change At+1 = z x At x Lat

Question 11

Resource constraint in romer model

Answer 11

Lyt + Lat = L

Question 12

Allocation of labour function in romer model

Answer 12

Lat = l x L

Question 13

What is the final romer model function solved

Answer 13

yt = Ao x (1-l)x(1+g)^t

output per person = starting stock of knowledge x (1-research worker proportion) x (1 + growth rate of knowledge i.e. zxlxL)^time

Question 14

How is the romer model graphed

Answer 14

straight line on ratio scale with output per person on y axis and time on x axis (constant growth)

Question 15

why is there long term growth in the romer model

Answer 15

non rivalry of ideas means the GDP per capita (output per person) is dependant on total stock of new ideas, not ideas per person so there are NO DIMINISHING RETURNS

Constant growth - no traansition dynamics

Question 16

what happens if you increase L in romer equation graphed

Answer 16

line gradient suddenly increases but then constant at this new gradient

Question 17

what happens if yhou increase l (proportion of workers in research) on graph of romer model

Answer 17

line gets steeper suddenly but at that point starts below the original one as fewer people work in production of consumption goods so initially output falls

Question 18

what impact does globalisation have on the romer model

Answer 18

discovery of new ideas spread easier since world is more integrated

Question 19

what leads to long term growth in the romer model

Answer 19

the discovery of new ideas

Question 20

what are the two takeaways when combining solow and romer

Answer 20

transition dynamics from solow - explaions why different countries grow at different rates

romer model gives long term growth theory due to nonrivalry of ideas which explains the overall trend in per capita income over time

Question 21

why do some countries decline in growth or are poorer / didnt grow enough

Answer 21

decline in capital investment rate, decline in productivity, intellectual property rights preventing access to stock of ideas of the world