ECC 1000 Topic 1

What does GDP per capita measure?

GDP per capita measures average living standards by dividing a country's GDP by its population.

What is the significance of purchasing power parity (PPP) in GDP comparisons?

PPP adjusts for price differences between countries to allow fair comparisons of living standards.

What does the 'Hockey Stick' curve represent in economics?

The 'Hockey Stick' curve illustrates a flat GDP per capita for centuries followed by sharp upward growth in recent centuries.

When did Britain begin to experience gradual GDP growth?

Britain began to experience gradual GDP growth around 1650.

What was the GDP per capita trend in China and India during colonial periods?

China and India experienced a decline in GDP per capita during colonial periods, with growth only beginning in the late 20th century.

What was the impact of British rule on India's GDP per capita from 1600 to 1870?

India's GDP per capita fell by one-third from 1600 to 1870 under British rule.

How did China's GDP per capita change during European dominance?

China's GDP per capita declined during European dominance and was just 1/14th of Britain's by the mid-20th century.

What is the modern trend in GDP growth for countries like India and China?

Since the late 20th century, countries like India and China have begun catching up with richer nations.

What does the historical data on GDP per capita rely on?

The historical data on GDP per capita is based on work by Angus Maddison and other economic historians.

What pattern do CO₂ emissions and global temperatures show since the late 1800s?

CO₂ emissions and global temperatures have risen sharply since the late 1800s, showing a 'hockey stick' pattern.

What are some consequences of global warming?

Consequences of global warming include melting polar ice caps, rising sea levels, shifts in climate patterns, and potential loss of habitable land.

How do GDP per capita and CO₂ emissions relate to each other?

The rise in GDP per capita and CO₂ emissions has occurred in parallel, with richer countries typically having higher emissions per person.

What was the state of global poverty before the rise in living standards?

Before the rise in living standards, most people lived in extreme poverty, lacking basic necessities.

What is the current global status of extreme poverty?

Today, only about 1 in 10 people live in extreme poverty, a significant reduction from historical levels.

How has income inequality changed between countries over the last millennium?

A thousand years ago, the world was economically flat with small income differences; today, there is high inequality in average income across nations.

What does historical equality across countries refer to?

Historical equality across countries refers to the similar average incomes countries had in the past, despite variations within them.

What is a key challenge for future economic development?

Future economic development must consider how to raise living standards without worsening climate change.

What historical events caused fluctuations in global temperatures?

Global temperatures have fluctuated due to natural events, such as the 1815 Mount Tambora eruption.

What is the relationship between economic growth and environmental cost?

While GDP growth has improved living standards, it has also come at a significant environmental cost.

What does the term 'hockey stick' imply in the context of climate change?

In climate change, 'hockey stick' refers to the sharp increase in CO₂ emissions and global temperatures over time.

What has been the trend in average global temperatures since 1900?

Average global temperatures have consistently increased since 1900, especially in the 21st century.

What is the significance of understanding prosperity and inequality in economics?

Understanding the causes of prosperity and inequality is central to economics and dates back to foundational works like those of Adam Smith.

What percentage of the world's population lives in countries with lower average income than India?

14% of the world's population.

What is the significance of purchasing power parity (PPP) in income comparisons?

PPP allows fair comparisons of daily income across different countries.

What does average income fail to show regarding inequality?

It does not show inequality within countries, which can be vast.

What historical event marked the beginning of the 'great divergence' in income between countries?

The 'great divergence' began around the 17th century and accelerated in the 18th century.

How does Figure 1.5 enhance the understanding of income distribution?

It shows income distribution within countries using a 3D model, with each country represented by 10 bars for each income decile.

What does the height of the bars in Figure 1.5 represent?

The average income per person in that income decile, measured in 2021 US dollars.

What does the width of the bars in Figure 1.5 indicate?

The population size of each income decile.

What is the rich/poor ratio and how is it calculated?

It measures the income disparity within a country, calculated as the height of the richest decile bar divided by the height of the poorest decile bar.

What was the rich/poor ratio for Norway?

66, indicating a relatively equal income distribution.

What was the average income in Norway compared to Nigeria in 2020?

Norway's average income was nearly 7 times higher than Nigeria's.

What does the term 'flatlands' refer to in the context of income distribution?

It refers to countries that industrialized late or not at all, remaining at lower income levels.

What major technological change began in Britain during the 18th century?

The Industrial Revolution, which marked a turning point in technological progress.

What are general-purpose technologies?

Innovations that impact many sectors and spur further innovation, such as the steam engine and the internet.

What was a significant innovation in lighting efficiency from the 1800s to 1992?

Compact fluorescent bulbs were 45,000 times more efficient than lights used 200 years earlier.

What role does technology play in economics?

Technology is a process that converts inputs into outputs, allowing for more efficient production.

What was the state of living standards from 1250 to 1750?

Living standards remained largely unchanged for most people during that period.

What impact did the Industrial Revolution have on production methods?

It replaced traditional craft-based methods with machines and new processes.

How did income inequality change from 1980 to 2020?

Income inequality within countries has grown significantly during that period.

What is a key takeaway regarding income inequality?

Income inequality involves differences both between countries and within countries.

What does the term 'hockey stick' of growth refer to?

It refers to the sharp upward trend in economic growth experienced by some countries.

What was the average income of the richest 10% in the United Arab Emirates in 2020?

$390,000 per person.

What does Figure 1.4 illustrate about global income?

It ranks countries by average income, highlighting disparities in wealth.

What is a significant observation about Norway's income distribution?

Despite high GDP per capita, Norway has a more equal income distribution, resulting in a less prominent tallest bar.

How did the number of internet users change from 1990 to 2020?

It grew from 2.6 million in 1990 to 4.7 billion in 2020.

What role does ongoing innovation play in economies?

It reshapes economies through advancements in electricity, transport, digital communication, and more, driving rising living standards.

What was the agricultural dominance before 1800?

Most people worked in agriculture; for example, about 60% of Italy's labor force was in agriculture from 1300 to 1800.

What is the Malthusian model?

Thomas Malthus argued that population growth would always outpace food production, keeping living standards low.

What does the production function show?

It shows the relationship between inputs (like labor and land) and output (e.g., grain).

What is the implication of diminishing returns in agriculture?

As more farmers are added to fixed land, the average output per farmer decreases.

What is the average product of labor in the example of 800 farmers producing 504,000 kg of grain?

630 kg per farmer.

What happens to average output per farmer as more farmers work the same land?

Total output increases, but average output per farmer decreases.

What is the Malthusian trap?

Technological improvements temporarily raise productivity and income, leading to population growth that eventually lowers average income back to subsistence levels.

What is subsistence equilibrium?

An economic state where average income equals subsistence level, halting population growth.

How does Malthus's model explain the flat part of the hockey stick in economic growth?

It shows that economic growth didn't lead to lasting improvements in living standards until the Industrial Revolution broke the Malthusian trap.

What analogy is used to explain the Malthusian trap?

The analogy of antelopes on a plain, where limited food resources lead to population limits.

What are two causes of diminishing returns in agriculture?

1. More labor on fixed land. 2. Expansion to inferior land as population grows.

What happens if income rises above subsistence level?

Population grows and income falls back to subsistence level.

What happens if income falls below subsistence level?

Population shrinks and income rises.

What does the curve of the production function look like as more labor is added?

It is concave, meaning it flattens as more labor is added.

What is the average product of labor for 1,600 farmers producing 778,000 kg of grain?

486 kg per farmer.

How did living standards remain flat for centuries according to Malthus?

Population growth outpaced technological improvements, leading to lower average output per person.

What is the significance of the Industrial Revolution in relation to the Malthusian trap?

It broke the trap, allowing for sustained improvements in living standards.

What does the term 'diminishing average product of labor' refer to?

The phenomenon where adding more workers to fixed land leads to less output per worker.

What is the relationship between population growth and living standards according to Malthus?

Population grows when living standards rise, which eventually pushes those standards back down.

What was the labor force percentage in agriculture in Italy by 2019?

Less than 4%.

What does Malthus's model explain regarding economic growth and living standards?

It explains why economic growth didn't lead to lasting improvements in living standards until the Industrial Revolution broke the trap.

What historical puzzle is presented regarding technology and living standards before the Industrial Revolution?

Technological improvements occurred in many regions, yet living standards remained flat for centuries.

How does Malthus's explanation account for the relationship between technology and population growth?

Improved technology raises average product of labour temporarily, leading to higher income and population growth, which then spreads the same land among more people, causing average output per person to fall.

What happens to the average product of labour after a technological improvement according to Malthus's model?

It initially shifts upward, but eventually returns to subsistence level as population grows.

What is Malthus's Law?

Technological progress raises productivity temporarily, but if the average product of labour diminishes with more workers on fixed land and population grows when living standards rise, then living standards return to subsistence in the long run.

What historical evidence supports Malthus's prediction regarding population and wages in England from 1280 to 1800?

Population fell during the Black Death, wages rose; as population recovered, wages fell back to subsistence, supporting Malthus's idea that productivity gains led to population growth which eroded income gains.

What was the turning point for living standards before the Industrial Revolution?

The capitalist revolution in the 18th century, which enabled sustained technological progress and rising living standards.

What are the three key institutions that characterize capitalism?

Private property, markets, and firms.

What is the role of private property in capitalism?

It allows individuals or entities to own, use, exclude others from, and transfer property.

How do markets function in a capitalist economy?

Goods and services are exchanged voluntarily for mutual benefit, often under competitive conditions.

What defines a firm in a capitalist economy?

Organizations where owners of capital hire and direct labour to produce goods and services for sale, aiming to make a profit.

What distinguishes firms from non-firms in a capitalist economy?

Firms aim for profit and are privately owned, while family-run businesses, non-profits, cooperatives, and government-owned entities do not.

Why are capitalist institutions important for economic growth?

They create incentives for innovation, efficient resource use, and expansion of production, facilitating the transition from stagnation to generational improvements in living standards.

What was the impact of agricultural innovations in the 17th century on wages?

Agricultural innovations raised wages again after a period of decline due to population growth.

How did the population trends in the 15th century affect living standards?

Fewer people led to more land per person, resulting in higher incomes.

What does the long flat part of the hockey stick graph represent?

It represents why living standards remained low despite technological progress before the Industrial Revolution.

What is the significance of the firm in the context of capitalism?

It is the most recent and distinctive feature of capitalism, enabling organized production and profit-driven innovation.

What historical context existed for capitalist institutions before the 18th century?

These institutions existed in various forms but were not combined in a way that consistently drove innovation and growth.

What is the relationship between technological progress and living standards according to Malthus?

Technological progress temporarily raises living standards, but population growth eventually absorbs these gains, returning living standards to subsistence.

What does the conclusion of Malthus's model suggest about technological progress?

It suggests that technological progress did not lead to lasting improvements in living standards before the Industrial Revolution due to population growth.

What role did the capitalist revolution play in economic growth?

It marked the emergence and spread of capitalism, enabling sustained technological progress and rising living standards.

What are the implications of Malthus's model for understanding historical economic patterns?

It provides a framework for understanding why living standards remained stagnant despite technological advancements prior to the Industrial Revolution.

What are the three nested economic systems described in capitalist economies?

Self-sufficient households, market economies with family-based production, and capitalist economies with private property, markets, and firms.

What was the predominant economic structure before 1600?

Most economies operated in the middle circle, where markets existed but firms were rare.

What are the key functions of firms in a capitalist economy?

Firms own capital goods, hire workers via the labor market, and sell goods in competitive markets to earn profits.

How do firms in capitalist economies scale compared to families or governments?

Firms can scale quickly due to their structure and ability to operate in competitive markets.

How does capitalism differ from centrally planned economies?

Centrally planned economies rely on government ownership and control, while capitalism is characterized by private property and market competition.

What is the relationship between centralization and decentralization in capitalism?

Capitalism combines centralization, where owners and managers direct large workforces, with decentralization, where firms compete in markets, limiting their power.

What factors contributed to the rise in living standards during capitalism?

The continuous technological revolution, strong incentives for firms to adopt new technologies, invest in capital goods, and innovate.

What significant shift occurred in the economic structure as capitalist firms grew?

Agriculture was no longer the dominant source of income and output, with manufacturing and services growing faster.

What were the two major changes in the labor force due to economic transformation?

Fewer people worked in agriculture, and more people moved into manufacturing and services.

Who developed a model explaining the transition from agriculture to industry and services?

Economist Arthur Lewis.

What is the difference between correlation and causation in the context of capitalism and living standards?

Correlation refers to two things happening together, while causation indicates one event causing another.