technology Flashcards
(25 cards)
primary factors of production
land, labour, capital
technology
a process taking a set of inputs (resources) to produce am output
technological progress
a change in technology that reduces the amount of resources required to produce a given amount of output
general purpose technologies
technological advances that can be applied to many sectors and spawn further innovation (ex steam engine)
cost of combination of inputs
C = wh + qe
isocost line
joins all the combinations of hours of work and enrgy that cost the same amount
slope of the isocost line
equal to wage relative to the price of energy (in the equation its a minus and the line is sloping downwards)
to check if one combination of hour of work and energy is cheaper that another combination
draw isocost lines for both and see which one has the lower vertical intercept
a firm’s profit for given price p
will be inversely related to the cost associated with the chosen combiantion of energy and hours of work (owners will pick the least cost technology (cheapest combination of hours of work and energy))
technological innovation shifts the isocost line to the left
slope stays the same
entrepreneuer
person who creates or is an early adopter of new technologies, organisational forms and other business opportunities
entrepreneural firm or person
displays willingness to innovate and start new businesses
innovation (shumpeterian) rents
additional profit an entrepeneuer gets when adapting a new technology that lowers the costs of production
production function
describes the relationship between the amount of output produced and the amounts of inputs used to produce it (convenienty represents the underlying available technologies
avarage product of labour
is the output (f(H)) divided by the hours of labour
marginal product
is the derivative of the output (f’(H)) or the slope of the production function at that point, it measures the additional output that is produced if the use of labour is increased by one unit, ceteris parabus
graph of the production function is strictly concave
the line segment between any two points on the graph of the function lies below the graph
strict concabity of the production function implies
that the marginal product of labour is strictly decreasing
law of diminishing marginal returns
output increases as the use of labour increases, ceteris parabus, but the marginal (incremental) output falls; it is assumed to apply to all factors in the production of goods and services
the average product of labour
at a point a corresponds to the slope of a a straight line through point a itself and the origin
diminishing marginal returns imply
a decreasing average product
malthus’ law
*law of diminishing marginal returns
* positive effect of living standars on population growth
malthus’ law
implies a vicious circle that leads to an equilibrium in which income per capita is stuck at the substinance level
*for a population with a fixed supply of agricultural land, living standards improve, therefore population and labour increase, lowering wages due to diminishing returns. this leads to falling living standards, which slows population growth, and incomes settle at a substinance level
in malthus’ model,
technological improvements do not improve living standards, their only effect is to permanently increase the population level
