Week 4 LT Flashcards
What are ideas vs objects
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
What is rivalry
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
What is nonrivalry
Use does not restrict someone else using it
What is the problem with pure competition in regard to innovation
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
What is the negative consequence of requiring prices to be above MC
there will be consumers who cannot afford the items e.g. drugs from pharma = loss in welfare
What are the problems with intellectual property rights for developing countries
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
what are the benefits for developing countries to respect intellectual property rights
Doing so may encourage multinational firms to locatte in developing countries and facilitaate the transfer of new technologies etc
What are the other ways you caan incentivise innovation
government funding, prizes etc
What is the output production function in the Romer Model§
Yt = At x Lyt
What is the idea production function in the romer model
change At+1 = z x At x Lat
Resource constraint in romer model
Lyt + Lat = L
Allocation of labour function in romer model
Lat = l x L
What is the final romer model function solved
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
How is the romer model graphed
straight line on ratio scale with output per person on y axis and time on x axis (constant growth)
why is there long term growth in the romer model
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
what happens if you increase L in romer equation graphed
line gradient suddenly increases but then constant at this new gradient
what happens if yhou increase l (proportion of workers in research) on graph of romer model
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
what impact does globalisation have on the romer model
discovery of new ideas spread easier since world is more integrated
what leads to long term growth in the romer model
the discovery of new ideas
what are the two takeaways when combining solow and romer
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
why do some countries decline in growth or are poorer / didnt grow enough
decline in capital investment rate, decline in productivity, intellectual property rights preventing access to stock of ideas of the world
