Unit 1 economics

A1S1

GDP VS GDP per capita

GDP= growth domestic product, measures an economies size: market value of all goods and services produced within a country in a year

GDP per capita = measures average living standards: formula = GDP/population

measuring economic growth rate formula

change in population/ original level of growth = (2001-2000)/2000

timing of growth and how important it was that countries “kinked” when they did (Britain vs Japan vs china vs India vs SA)

Britain= in 1650 (broke from the malthusian trap)

Japan= 1870

China and India= in second half of 20th century

Africa= no kink and years of slavery and extractive institutions= no help

Took off long ago = rich, Other = in the flatlands (3rd world /developing)

Some economies: improvements in living standards only improved after escaping colonial rule or interference by European countries

industrial revolution

changing from human labour to technology (hand made to machine based)

technology = uses inputs (machinery, labour, materials) to produce outputs

technological process= less labour for more output

Since Industrial Revolution we have seen permanent technological revolution

difference between industrial revolution and capitalism

IR= focused on how goods are made

Capitalism= Focused on how wealth and resources are managed

capitalism is an economic system and characterised by a new combination of institutions built around

private property

markets

firms

families

government

in a capitalist where does production take place and where do inputs and outputs take take place

production = firms

inputs and outputs= private property

economic power

Economic power is mostly controlled by business owners and managers, but they are kept in check by competition from other companies.

how capitalism improved living standards

Specialisation: growth of firms and expansions of markets allowed for more division of labour with more people being put into new jobs built and suited for them

Technology: firms competing with each other = wanted to use and develop more tech to make business more competitive

gains for specialisation

people are more productive if they focus on one job because of:

difference in ability

learning by doing

economies of scale

absolute advantage vs comparative advantage

Absolute advantage

• Producing something more efficiently (faster/with fewer resources) than others

• A person or country has an absolute advantage if they can produce a good using fewer resources than others.

Comparative advantage

• Producing something at a lower opportunity cost (giving up less of something else)

Absolute advantage = best at making it
Comparative advantage = least sacrifice to make it

capitalism fails to raise living standards when

private property Is not secure

markets not competitive

firms owned/ managed by people through nepotism

politcal conditions

not a well functioning legal system and government docent provide essential goods and services