Unit 2 Flashcards
What does Malthus’ theory state?
As people’s incomes increased, their desire to have children also increased, however there reaches a point where population growth outstrips resources and there is a decrease in living standards and halt in population growth
What does the Malthusian trap implicate?
That increased income lead to increased population than then lead to falling income as pressure was put on the available resources
What are the different economists reasons as to why the industrial revolution first occurred in Britain?
- Joel Mokyr- Scientific revolution in Europe
- David Landes- Stability and innovation was promoted
- Gregory Clark- There was a hardworking culture
- Kenneth Pomeranz- There was abundance of coal and access to agricultural production
- Robert Allen- High cost of labour and lower coal costs
What is an economic model?
This is a simplified version of reality that allows us to observe, understand, and make predictions about economic behaviour.
They show how interactions generate an income.
-They abstract from reality and focus on key determinants of an outcome
-Show how interactions generate an equilibrium and how conditions affect that equilibrium
What is the model of innovation
This can be used to explain how capitalism promoted innovation and how technological process is built on four key ideas:
- Ceteris Paribus
- Incentives Matter
- Economic Rent
- Relative prices
Explain what is meant by each of the four key ideas of technological progress
- Ceteris Paribus- All other things constant
- Incentives Matter- Individuals look to do what is best for themselves
- Economic rent- The difference between what an individual gets and their reservation option
- Relative prices- The monetary value of one good expressed in terms of another
What do firms do when choosing which technology to use:
- Rule out ‘dominated’ ones
2. Compare costs of each technology
What is a technology?
The combinations of inputs used to produce an output
How is the total cost calcuated?
wl + rp
What is an isocost line?
This shows all the combinations of a technology that cost a given amount
The slope is the relative price
What happened during the technological revolution in Britain?
- They initially produced using technology B (Labour was relatively cheap)
- As labour got more expensive they moved towards using technology B
According to Robert Allen, why did the industrial revolution first occur in Britain?
- British labour was expensive relative to coal
- British labour was expensive relative to machinery
What did Joseph Shumpeter mention?
He emphasized the role of the entrepreneur as the agent of change in producing new technologies and new products
What are the two assumptions that the Malthus model makes?
- The production function has diminishing average product of labour
- Population increases when average product exceeds subsistence
What is the subsistence level?
This is the level of living standards such that the population won’t grow or decline
