QUESTIONS FROM CHAPTER 4
1. What three factors distinguish models of endogenous growth from their
neoclassical counterparts?
➢ There are increasing returns to capital investment (as opposed to
decreasing),
➢ There are increasing returns to scale (as opposed to constant), and
➢ Externality effects are included.
2. What is meant by the term technological spillover?
Technological spillovers are present when investment generates external
economies. The knowledge component of the firm’s capital stock is like a
public good that spills over to other firms in the economy.
3. Explain what is meant by the term coordination failure.
This is a situation in which agents are unable to coordinate their efforts, and
hence end up in an equilibrium that leaves them worse off than they would be
if they were able to coordinate.
4. Is a coordination failure a type of market failure? Explain.
Yes, because an equilibrium can be reached that is not the true social
equilibrium.
5. Explain the basic idea behind the Big Push model.
The Big Push Model is a concept in development economics or welfare
economics that emphasizes the fact that a firm's decision whether to
industrialize or not depends on the expectation of what other firms will do. It
assumes economies of scale and oligopolistic market structure. It also
explains when the industrialization would happen.
The hallmark of the ‘big-push’ approach lies in the reaping of external
economies through the simultaneous installation of a host of technically
interdependent industries. But before that could become possible, we have to
overcome the economic indivisibilities by moving forward by a certain
1. What three factors distinguish models of endogenous growth from their
neoclassical counterparts?
➢ There are increasing returns to capital investment (as opposed to
decreasing),
➢ There are increasing returns to scale (as opposed to constant), and
➢ Externality effects are included.
2. What is meant by the term technological spillover?
Technological spillovers are present when investment generates external
economies. The knowledge component of the firm’s capital stock is like a
public good that spills over to other firms in the economy.
3. Explain what is meant by the term coordination failure.
This is a situation in which agents are unable to coordinate their efforts, and
hence end up in an equilibrium that leaves them worse off than they would be
if they were able to coordinate.
4. Is a coordination failure a type of market failure? Explain.
Yes, because an equilibrium can be reached that is not the true social
equilibrium.
5. Explain the basic idea behind the Big Push model.
The Big Push Model is a concept in development economics or welfare
economics that emphasizes the fact that a firm's decision whether to
industrialize or not depends on the expectation of what other firms will do. It
assumes economies of scale and oligopolistic market structure. It also
explains when the industrialization would happen.
The hallmark of the ‘big-push’ approach lies in the reaping of external
economies through the simultaneous installation of a host of technically
interdependent industries. But before that could become possible, we have to
overcome the economic indivisibilities by moving forward by a certain
