economics 114
stellenbosch university 2024
jess
Unit 1 : The Capitalist Revolution
Increases in avg living standards
• became a permanent feature of economic life
• in many countries
This was associated with
• the emergence of a new economic system
• called capitalism
- in which private property, markets and firms play a major role
The amount produced in a days work was raised by
1. organising the economy
2. advances in technology
3. specialisation in products and tasks
The capitalist revolution
- is a process
- which has been accompanied by growing threats to our natural environment
- and by unprecedented global economic inequalities
economics
➜ is the study of how people interact with each other
➜ and with the natural environment
➜ in producing their livelihoods
GDP
To compare living standards in each country
• We use a measure called GDP per capita
People obtain income
• by producing goods
• OR services
GDP
= gross domestic product
GDP (Gross Domestic Product) measures an economy’s size
• the market value of all goods and services produced in a country within a given time
period
• (typically 1 year)
• ∴ measure of total income earned within a country
GDP per capita measures average living standards :
• Income per person OR
1
,1.1. Income inequality
Incomes across countries and over time
• A figure of income levels over time resembles a hockey
stick
• Relative income change
- in 1300 , italy was richest
- in 1800 , Britain was richest
- from 1900 , the US is even richer
1.2. measuring income and living standards
• GDP ÷ population
GDP
➜ measure the market valid of the output of final goods and services in the economy in a
given period
➜ output of intermediate goods that are inputs to final production is exclude to prevent
double counting
• When we calculate income & living standards
- the value of GDP corresponds to the total income fo everyone in the country
Disposable income
• Income available after paying taxes and receiving transfers from the government
It is
- the amount of wages or salaries, profit, rent, interest and transfers
- from the government
- such as unemployment or disability benefits
It is thought to be a good measure of living standards because
- it is the maximum amount of food, housing, clothing and other goods and services that
the person can buy without having to borrow OR without going into debt or selling
possessions
Is our disposable income a good measure of our wellbeing?
Income is a major influence on wellbeing because it allows us to buy the goods and
services we enjoy HOWEVER it is insufficient because many aspects of our wellbeing are
not related to what we can buy
For e.g. :
➜ the quality of our environment (air quality & people)
➜ our free time to relax
➜ access to healthcare and education
➜ meals / food and childcare (household)
Valuing government goods & services
• GDP includes goods & services produced by the government
• e.g. schooling , national defence , law enforcement
• In this repeat , GDP per capita is a better measure of living standards than disposable
income
2
,1.3. History’s hockey stick : growth in income
• The RATIO scale is comparing growth rates
When a ratio scale is used
➜ a series that grows at a constant rate = straight line
➜ this is because the percentage (proportional growth rate) is constant
➜a steeper line in the ratio scale chart = faster growth rate
3
, Industrial revolution
(technology)
What is the industrial revolution?
• A wave of technological advances and organisational changes starting in Britain in
the eighteenth century , which transformed an agrarian and craft-based economy
into a commercial and industrial economy
Capitalism = the permanent technological revolution
technology
• a process using a set of material and other inputs , including the work of people and
machines , to produce an output
Technology process
- means less labour is needed
- to produce the same output
Technology used to be very slow
- however since the industrial revolution we have witnessed a permanent technological
revolution
Capitalism
Capitalism is
• an economic system
• in which the main form of economic organisation is the firm ,
• in which the private owners of capital goods hire labour
• to produce goods and services
• for sales on markets
• with the intent to make a profit
It is characterised by
• A new combination of institutions build around
1. Private property (people owning things)
2. Markets (where goods can be bought and sold)
3. Firms
But even capitalist economies rely on non-capitalist institutions
• Families
• Government
Definitions :
• Economic system - a way of organising the economy that is distinctive in its basic
institutions. Economic systems of the past and present include: central economic
planning , feudalism, slave economy and capitalism
• Institution - the laws and informal rules that regulate social interactions among people
and between people and the biosphere , sometimes also termed the rules of the
game
In the capitalist economy
- an NB type of private property is the equipment, buildings and other durable inputs
used in producing goods & services
- This is called capital goods
4
stellenbosch university 2024
jess
Unit 1 : The Capitalist Revolution
Increases in avg living standards
• became a permanent feature of economic life
• in many countries
This was associated with
• the emergence of a new economic system
• called capitalism
- in which private property, markets and firms play a major role
The amount produced in a days work was raised by
1. organising the economy
2. advances in technology
3. specialisation in products and tasks
The capitalist revolution
- is a process
- which has been accompanied by growing threats to our natural environment
- and by unprecedented global economic inequalities
economics
➜ is the study of how people interact with each other
➜ and with the natural environment
➜ in producing their livelihoods
GDP
To compare living standards in each country
• We use a measure called GDP per capita
People obtain income
• by producing goods
• OR services
GDP
= gross domestic product
GDP (Gross Domestic Product) measures an economy’s size
• the market value of all goods and services produced in a country within a given time
period
• (typically 1 year)
• ∴ measure of total income earned within a country
GDP per capita measures average living standards :
• Income per person OR
1
,1.1. Income inequality
Incomes across countries and over time
• A figure of income levels over time resembles a hockey
stick
• Relative income change
- in 1300 , italy was richest
- in 1800 , Britain was richest
- from 1900 , the US is even richer
1.2. measuring income and living standards
• GDP ÷ population
GDP
➜ measure the market valid of the output of final goods and services in the economy in a
given period
➜ output of intermediate goods that are inputs to final production is exclude to prevent
double counting
• When we calculate income & living standards
- the value of GDP corresponds to the total income fo everyone in the country
Disposable income
• Income available after paying taxes and receiving transfers from the government
It is
- the amount of wages or salaries, profit, rent, interest and transfers
- from the government
- such as unemployment or disability benefits
It is thought to be a good measure of living standards because
- it is the maximum amount of food, housing, clothing and other goods and services that
the person can buy without having to borrow OR without going into debt or selling
possessions
Is our disposable income a good measure of our wellbeing?
Income is a major influence on wellbeing because it allows us to buy the goods and
services we enjoy HOWEVER it is insufficient because many aspects of our wellbeing are
not related to what we can buy
For e.g. :
➜ the quality of our environment (air quality & people)
➜ our free time to relax
➜ access to healthcare and education
➜ meals / food and childcare (household)
Valuing government goods & services
• GDP includes goods & services produced by the government
• e.g. schooling , national defence , law enforcement
• In this repeat , GDP per capita is a better measure of living standards than disposable
income
2
,1.3. History’s hockey stick : growth in income
• The RATIO scale is comparing growth rates
When a ratio scale is used
➜ a series that grows at a constant rate = straight line
➜ this is because the percentage (proportional growth rate) is constant
➜a steeper line in the ratio scale chart = faster growth rate
3
, Industrial revolution
(technology)
What is the industrial revolution?
• A wave of technological advances and organisational changes starting in Britain in
the eighteenth century , which transformed an agrarian and craft-based economy
into a commercial and industrial economy
Capitalism = the permanent technological revolution
technology
• a process using a set of material and other inputs , including the work of people and
machines , to produce an output
Technology process
- means less labour is needed
- to produce the same output
Technology used to be very slow
- however since the industrial revolution we have witnessed a permanent technological
revolution
Capitalism
Capitalism is
• an economic system
• in which the main form of economic organisation is the firm ,
• in which the private owners of capital goods hire labour
• to produce goods and services
• for sales on markets
• with the intent to make a profit
It is characterised by
• A new combination of institutions build around
1. Private property (people owning things)
2. Markets (where goods can be bought and sold)
3. Firms
But even capitalist economies rely on non-capitalist institutions
• Families
• Government
Definitions :
• Economic system - a way of organising the economy that is distinctive in its basic
institutions. Economic systems of the past and present include: central economic
planning , feudalism, slave economy and capitalism
• Institution - the laws and informal rules that regulate social interactions among people
and between people and the biosphere , sometimes also termed the rules of the
game
In the capitalist economy
- an NB type of private property is the equipment, buildings and other durable inputs
used in producing goods & services
- This is called capital goods
4
