Rise of the Modern World Economy Midterm

Gross Domestic Product per Capita

Represents total value of everything produced within a country divided by the number of people in the country; measure of economic wellness

Aggregate Social Welfare

Summing up all utility of everyone in a given situation to evaluate overall wellbeing; zero sum game, etc; distributional effects nuance definition because one thing has a different impact on different people.

Normative vs. Positive Analysis

Normative analysis asks abstract and lofty questions whereas positive analysis asks questions grounded in analytical and answerable ways (testable/measurebale).

Productivity

A measure of the efficiency of production, often expressed as the ratio of outputs to inputs in the production process. Affected by investment and behavior (consuming/saving); does a country choose to invest in human capital or capital (more laborers on a farm, skilling of laborers, or even better euipment).

Exogenous and Endogenous Factors

Exogenous: Influences determined outside the model (e.g., geography, climate, world demand). They affect growth but aren’t explained by the system.

Endogenous: Determined within the system (e.g., human capital, innovation)

Technological Change

How capital shifts over time with innovation; can lead to major changes in productivity and leads the way for economic growth.

Endowments

Represent what a country might ‘start with’; can be natural resources, high labor supply, a lot of land, good technology, and all effect paths of economic growth

Factors of Production

Typically labor and capital; inputs necessary for production to maintain its current level and if you want to increase productivity, you have to increase one of these here factors

Interests

the will of people, groups of people, formal bodies, organizations, and really any other assemblage of individuals. Impacts institutions and how institutions form, but also there’s backwards interplay there as well.

Institutions

Political and legal arrangements are the basic formal rules and laws within which individuals and firms operate. Voluntary and cooperative economic arrangements influence nature or organization of exchange. Cultural and religious values and beliefs influence economic behavior.

Property Rights

Emerges in feudalism with local property rights schemes emerging; allows individuals to have some sort of say over their land and incentivizes people to invest in their land because it can’t flippantly be taken from them.

Contract Enforcement

Requires institutions and centralization to work effectively, but it generally means that arrangements can be made between individuals or businesses as a result of

Credible Commitment

When rulers or elites can commit to policies that others believe will not be reversed; essential for investment and contract enforcement; discussed in context of the glorious revolution

Third Party Enforcement

In terms of contract enforcement and those sort of arrangements, a third party (whether that be a legislative body, a judge, or any objective party) can come in and ensure that both parties are heldf to the agreements within the contract

Public Good

non-excludable and non-rivalrous, everyone contributes to it but there’s no burden on any one person so usually leads to a tragedy of the commons type situation

Differential-benefits public good

Externalities

Externalities are the effects on a third party that result from the production or consumption of a good or service; they are represented by the gap between the private cost or benefit of a good and the social cost or benefit of the good. Pollution is a frequently cited example of a negative externality, because the oil and gas companies that produce emissions do not themselves incur the costs of pollution, but the rest of society has to. 

Spillovers

Spillovers can be both positive and negative, and generally just refer to the idea that effects (both good and bad) can be experienced or produced for those not directly involved in the transaction itself. You can have positive spillovers, like the technology example we discussed in section; you can also have negative spillovers, like pollution. 

Pareto Improvement

Everyone is strictly better