chapter 2 - technological change, population and economic growth

Question 1

how are economic models linked to this module?

Answer 1

they help to explain the industrial revolution in britain

Question 2

what matters when people make economic decisions?

Answer 2

wages, cost of machinery and other prices

Question 3

what interacts to create a vicious circle of economic stagnation?

Answer 3

population, productivity of labour and living standards

Question 4

what was thomas malthus’ view?

Answer 4

population grows geometrically and food arithmically and therefore even with technological advances people will still run out of food as population grows at a faster rate than food

pessimistic view of economic progress

Question 5

what is the industrial revolution?

Answer 5

a time of radical invention that allowed the same output to be produced with less labour

Question 6

what happened in britain from 1200 to 2000

Answer 6

real wages stayed the same up until 1800 in which this is where britain escaped form the malthusian trap

Question 7

why do we use model s in economics?

Answer 7

to be able to look at the big picture

cant describe every single detail

Question 8

how do you create an effective model?

Answer 8

distinguish between the essential features of the economy that are relevant to the question

Question 9

how are models in economics used?

3 steps

Answer 9

1) built model to capture elements of economy that mattered in terms of question
2) used model to show interaction between elements
3) conduct experiments/gather data that show what happens when you change the economic conditions

Question 10

what is an equilibrium?

Answer 10

situation in which doesn’t change unless a force for change is introduced that alters the basic data

Question 11

what is subsistence?

Answer 11

the action of maintaining oneself especially at minimal level

Question 12

in the malthusian model was is an equilibrium?

Answer 12

wage equal to subsistence

Question 13

what is the process in which a model is built?

Answer 13

• construe simplified description of the condition under which people take actions
• describe in simple terms what determines the actions people take
• determine how each of their actions affects others
• determine the outcome of these actions
• insight into what happens when condition change

Question 14

why are mathematics used in models?

Answer 14

• describe models
• ## part of the language of economics

Question 15

how does a model usually begin?

Answer 15

with assumptions or hypotheses about how people behave

Question 16

what does ceteris paribus mean and why is it important?

Answer 16

ll other things remain unchanged

it is hard to isolate everything in economics

Question 17

what is an assumption in how people make choices?

Answer 17

economic rents

Question 18

in terms of this module what are example of ceteris paribus?

Answer 18

• prices of all inputs in firms are the same
• all firms known technologies in used in others
• attitudes towards risk are similar among firm owners

Question 19

what is meant by relative prices and why is it important?

Answer 19

ratio of things (not absolute level) the price of one option relative to another

economics focuses on alternatives and choice

characteristic of an economic model

Question 20

during the industrial revolution what were the prices that mattered to most to inventors and firms?

Answer 20

• energy prices (coal)
• wage rate
• ratio of the two

Question 21

what is an innovation rent?

Answer 21

a form of economic rent

Question 22

what is one of the reasons in which capitalism is such a dynamic system?

Answer 22

economic rents
something you would like to gain
in that anyone seeking rent is likley to change price etc

Question 23

what is the calculation for econmoic rent?

Answer 23

benefit form option taken - benefit fro the next best option

Question 24

what are the basic institutions of capitalism?

Answer 24

• markets
• firms
• private property

Question 25

what is meant by a technology?

Answer 25

anything that helps produce someone faster, better or cheaper producing an output

Question 26

what can technologies promote?

Answer 26

cost reducing innovation

Question 27

how do firms decide which technologies to choose?

Answer 27

ones that are inferior to others | can be displayed on a graph

Question 28

what does making a decision about a technology require?

Answer 28

- making an assumption about the goal of the firm | - relaive prices of hiring workers and purchasing any materials

Question 29

how do a firm evaluate the cost of production using different technologies?

Answer 29

by working out the cost of all technologies | cost = (wage x workers) + (price of material x amount of material)

Question 30

what is an isocost line?

Answer 30

line long which all combinations of two factors cost the same amount

Question 31

how would you work out an isocost line to work out how many people will work and tonnes of coal?

Answer 31

find out how many people could work for £80 and work out how much coal you could by for that much

Question 32

what will change the slope of an isocast line?

Answer 32

the relative prices of the two inputs

Question 33

what is an example in which relative prices changed in relation to an isocost line?

Answer 33

industrial revolution | wages rose

Question 34

how do you work out economic rent?

Answer 34

revenue - cost

Question 35

why do innovation rents not last forever?

Answer 35

when they first innovate they have little competaition and therefore are gaining the highest economic rent but as others start to innovate in a similar way they lose economic rents

Question 36

how do cost reducing innovation raise the profits?

Answer 36

as if they are making the same revenue as before there costs will be smaller and therefore economic rent (profit) will increase this can be worked out on a n isocost line

Question 37

what is the major difference between pre industrial revolution technologies and post technologies?

Answer 37

old - labour intensive (capital and energy saving) | new - capital intensive (energy intensive and labour saving)

Question 38

why was there an incentive in Britain to replace workers with machines around the 17th century?

Answer 38

as the price of wages relative to coal and other materials was high cost reducing innovation

Question 39

how can the industrial revolution in britain be explained, e.g why did it take place when it did?

Answer 39

in the 16th centre wages ratline to cost of energy and capital goods were higher in britain than elsewhere and this was not the case in earlier centuries technology grew rapidly ocompated to any other place

Question 40

what are the factors that lead to the diffusion of technologies across the world?

Answer 40

- further technological progress, take smaller inputs to produce larger outputs - wage growth and falling energy costs

Question 41

why was there falling energy costs around the world?

Answer 41

cheaper transportation

Question 42

how can the flat bit of the hocky stick be explained?

Answer 42

malthus built a new model that helped to explain the stagnation pre industrial revolution that meant that GDP didn't grow

Question 43

what is one the most important concepts in economics that helps to explain stagnation?

Answer 43

diminishing average product of labour

Question 44

how do you work out the average product of labour?

Answer 44

total output / total labour quantity (amount of workers)

Question 45

what is DAPL?

Answer 45

state that whilst increasing one input and keeping all inputs the same the output will initially increase but further increases will have limited effect and will eventually have no effect or a negative effect of output

Question 46

how does DAPL occur in relation to technologies?

Answer 46

as population increases there is a need for more food at the start farmers start growing more initially earning more as there is more people more food is grown but the average product per worker decreases

Question 47

how did the stagnated part of the hockey stick end?

Answer 47

improvements in technology allowed more product per worker | real wages started to rise GDP rises

Question 48

what was the other reason that explained stagnation?

Answer 48

malthus stated that increased living standards create an increase in population

Question 49

how is the subsistence level related to malthus population idea?

Answer 49

the idea that if population grows the amount of food will decline per person it will decline to the point in which population will stop growing as result of lack of food and will remain at the subsistence level anything below this level will mean they will reduce in size incomes will settle at SL

Question 50

what did malthus state about unlimited substance?

Answer 50

if we have US then population will keep growing but eventually fill a country and population growth would push down incomes as a results of DAPL

Question 51

what is malthus' model - the effect of a good harvest?

Answer 51

a good harvest leads to rise in farmers income to population rise to less land per farmer to average output falls to farmer income falls and eventually leads back to the equilibrium level

Question 52

how can malthus's ideas be linked to technological advances?

Answer 52

the fact that as a new technology increases it will be the same as if foof output rose in the fact that it would still lead to lower income will increase productivity but not wages

Question 53

why is the malthusian model not a reasonable description of the world?

Answer 53

due to the permanent technological revolution | emerge living standards increased rapidly and premaantly after the capitalist revolution