Microeconomics Lecture 3 and 4

What are reasons that the Industrial Revolution occured in Britain around 1800

1. Scientific Revolution

2. Innovation over stability

3. Hard Work

4. Cheap cotton and sugar in Africa (slavery)

5. High wages and cheap coal

Explain why economic models are used

These are used to focus on certain details instread of big picture things.

These models generate a equilibrium and many changes will impact the equilibrium.

What is a Technology

A technology uses inputs like materials, machinery, and labor to produce a certain output.

For centuries technological progress was slow. But since the industrial revolution there has been a permanent technological revolution.

Model of Innovation.

The model makes three key assumptions called ceteris paribus meaning “holding other things constant

1. Firms are interested in maximizing profit

2. Firms’ profits depend on the price of inputs

3. Economic rent drivs the adoption of this tech

Innovation rent = profits from new tech - profits from old tech

Explain high wages and high coal prices

When wages are high it makes sense to increase machinery that uses less number of workers. This minimizes the impact of increasing coal value.

Who was Joesph Schumpeter

He believed the entrepreneur was the major change maker with new tech.

This leads to creative destruction. This is where certain jobs are replaced by new technology, or things with less workers. (Spinning mule put spinsters out of work)

According to Robert Allen why did the industrial revolution occur in Britain?

British labor was expensive compared to coal.

British labor was expensive relative to machinery.

Less workers were wanted, so more machinery that need less workers were starting

What is the Malthusian Trap

This is the idea that as there is more wealth people will have more children and live longer. Eventually there will not be enough crops to feed these people and the population will drop reaching the subsistence level.