Economics 1 – Microeconomics
Malthus’s Law and Hockey Stick Growth
GDP: Gross domestic product measures the monetary value of all final goods and
services produced within a year (or other period of time) in a market/country. It often
serves as an (imperfect) indicator of economic and social progress.
Malthus argued that because of earth’s limited resources, population growth and
sustainable improvement of living conditions would not be feasible at the same time.
As more farmers work on a fixed amount of land, the average product of labour falls,
then:
total output
Average product of labour =
number of workers
o When living standards have been fixed down to subsistence level as a result of
population growth, the population is no longer getting bigger. This point is called
equilibrium (income level enough to subsistence).
The Malthusian model predicts that improvements in technology will not raise living
standards if:
o The average product of labour diminishes as more labour is applied to a fixed amount of
land (input);
o Population growth in response to increases in real wages.
Population growth under the Malthusian Trap still benefits a small part of the
population, in this case the land owners.
, o As population grows, the demand also growths, therefore limited resources tend to
become more valuable (price of land rises).
Escaping from Malthusian stagnation:
o The possibility that improvements in technology could happen at a faster rate
than population growth was not considered. This offsets the diminishing
average product of labour and leads to a Hockey-Stick Growth in the GDP per
capita.
Machines increased outcome per worker Unemployment kept wages low increase in
profit
business expansion higher demand for labour (prohibition of child labour + vote power
for
workers + work legislation) workers’ bargaining power enhanced higher wages
o Increase on wages related to:
How much is produced = size of the pie to be shared
Workers’ bargaining power = political, supply and demand
INDUSTRIAL
REVOLUTION
,Adam Smith and the Division of labour
The Wealth of Nations (1776): He generally, indeed, neither intends to promote the
public interest, nor knows how much he is promoting it. […] he intends only his own
gain, and he is in this, as in many other cases, led by an invisible hand to promote an
end in which was no part of his intention. Nor is it always the worse for the society that
it was no part of it. By pursuing his own interest, he frequently promotes that of the
society more effectually than when he really intends to promote it.
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect
our dinner, but from their regard to their own interest. We address ourselves, not to
their humanity but to their self-love, and never talk to them of our own necessities but
of their advantages.
Invisible hand: is an economic concept that describes the unintended greater social
benefits and public good brought about by individuals acting in their own self-
interests.
The invention of machines led to faster work, but also to a more specialized one,
mainly because of:
o Dexterity: knowledge and learning by doing
o Difference in abilities
o Economies of scale: producing a large number is often more cost-effective
o Saving of time
Specialization entails trade, because by producing a narrower range of goods and
services than you use/need, you must engage in trade to acquire the ones you do not
produce.
Economies of scale and Countries’ differences in the
agglomeration and other supply of factors of
positive feedbacks production, tech., institutions
and policies
Between-countries difference
in the relative costs of
particular goods and services
Country specialization in production
of the goods and services in which
they have a comparative advantage
Between-countries trade in which
each country specializes
, Obs:
Economies of Agglomeration: is the cost reduction that firms enjoy when they are located
close to other firms in the same or related industries
Relative costs: is the price of a product compared to another product. It’s expressed as a ratio
between the prices of two products or services.
Absolute advantage: who produces more in quantity
Comparative advantage: Comparative advantage is an economy's ability to produce a
particular good or service at a lower opportunity cost than its trading partners. A comparative
advantage gives a company the ability to sell goods and services at a lower price than its
competitors
Capitalism
Economic system: Is a way of organizing the production and distribution of goods and
services in an entire economy
Capitalism is an economic system built on three basic structures:
o Markets: Means of transferring goods and services
Reciprocal: Exchange
Voluntary: beneficial for both parties
Competition
o Firm: Pay wages or salaries to employees. Are productive organizations which
are quickly scalable
Labour market = employers (demand) and workers (supply)
o Private property: Inputs and outputs
Buyers will not want to pay for goods unless they can have the right to
own them
Capital goods: inputs used in production
Capitalism combines centralization with decentralization:
o Power concentrated in the hands of owners
o Power limited by competition
Leads to growth in living standards:
o Technology
o Specialization
Scarcity
Resources < Needs/Wants
Intra-personal competition:
o How to make best use of time, money
Malthus’s Law and Hockey Stick Growth
GDP: Gross domestic product measures the monetary value of all final goods and
services produced within a year (or other period of time) in a market/country. It often
serves as an (imperfect) indicator of economic and social progress.
Malthus argued that because of earth’s limited resources, population growth and
sustainable improvement of living conditions would not be feasible at the same time.
As more farmers work on a fixed amount of land, the average product of labour falls,
then:
total output
Average product of labour =
number of workers
o When living standards have been fixed down to subsistence level as a result of
population growth, the population is no longer getting bigger. This point is called
equilibrium (income level enough to subsistence).
The Malthusian model predicts that improvements in technology will not raise living
standards if:
o The average product of labour diminishes as more labour is applied to a fixed amount of
land (input);
o Population growth in response to increases in real wages.
Population growth under the Malthusian Trap still benefits a small part of the
population, in this case the land owners.
, o As population grows, the demand also growths, therefore limited resources tend to
become more valuable (price of land rises).
Escaping from Malthusian stagnation:
o The possibility that improvements in technology could happen at a faster rate
than population growth was not considered. This offsets the diminishing
average product of labour and leads to a Hockey-Stick Growth in the GDP per
capita.
Machines increased outcome per worker Unemployment kept wages low increase in
profit
business expansion higher demand for labour (prohibition of child labour + vote power
for
workers + work legislation) workers’ bargaining power enhanced higher wages
o Increase on wages related to:
How much is produced = size of the pie to be shared
Workers’ bargaining power = political, supply and demand
INDUSTRIAL
REVOLUTION
,Adam Smith and the Division of labour
The Wealth of Nations (1776): He generally, indeed, neither intends to promote the
public interest, nor knows how much he is promoting it. […] he intends only his own
gain, and he is in this, as in many other cases, led by an invisible hand to promote an
end in which was no part of his intention. Nor is it always the worse for the society that
it was no part of it. By pursuing his own interest, he frequently promotes that of the
society more effectually than when he really intends to promote it.
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect
our dinner, but from their regard to their own interest. We address ourselves, not to
their humanity but to their self-love, and never talk to them of our own necessities but
of their advantages.
Invisible hand: is an economic concept that describes the unintended greater social
benefits and public good brought about by individuals acting in their own self-
interests.
The invention of machines led to faster work, but also to a more specialized one,
mainly because of:
o Dexterity: knowledge and learning by doing
o Difference in abilities
o Economies of scale: producing a large number is often more cost-effective
o Saving of time
Specialization entails trade, because by producing a narrower range of goods and
services than you use/need, you must engage in trade to acquire the ones you do not
produce.
Economies of scale and Countries’ differences in the
agglomeration and other supply of factors of
positive feedbacks production, tech., institutions
and policies
Between-countries difference
in the relative costs of
particular goods and services
Country specialization in production
of the goods and services in which
they have a comparative advantage
Between-countries trade in which
each country specializes
, Obs:
Economies of Agglomeration: is the cost reduction that firms enjoy when they are located
close to other firms in the same or related industries
Relative costs: is the price of a product compared to another product. It’s expressed as a ratio
between the prices of two products or services.
Absolute advantage: who produces more in quantity
Comparative advantage: Comparative advantage is an economy's ability to produce a
particular good or service at a lower opportunity cost than its trading partners. A comparative
advantage gives a company the ability to sell goods and services at a lower price than its
competitors
Capitalism
Economic system: Is a way of organizing the production and distribution of goods and
services in an entire economy
Capitalism is an economic system built on three basic structures:
o Markets: Means of transferring goods and services
Reciprocal: Exchange
Voluntary: beneficial for both parties
Competition
o Firm: Pay wages or salaries to employees. Are productive organizations which
are quickly scalable
Labour market = employers (demand) and workers (supply)
o Private property: Inputs and outputs
Buyers will not want to pay for goods unless they can have the right to
own them
Capital goods: inputs used in production
Capitalism combines centralization with decentralization:
o Power concentrated in the hands of owners
o Power limited by competition
Leads to growth in living standards:
o Technology
o Specialization
Scarcity
Resources < Needs/Wants
Intra-personal competition:
o How to make best use of time, money
