2025 Econ 114 Unit 2 English fina;

Unit 2: Technology, Population and Growth

Understanding Economic Models

• Purpose of Models: To gain insights into economic performance and simplify complex interactions.

• Characteristics of Good Models:

  • Clarity

  • Accuracy

  • Usefulness

• Limitations: Models can oversimplify and may not capture all real-world complexities.

Key Economic Concepts

• Hockey Stick Diagram: Represents real wage stagnation prior to the Industrial Revolution.

• Malthusian Model: Analyzes wage stagnation and population dynamics.

• Factors of Production: Essential resources used to produce goods and services.

• Production Function: The relationship between input factors and output.

• Diminishing Average Product: As quantity of labor increases, the average output per worker may decrease.

• Technological Change: Innovation influencing economic growth.

Main Themes

• Population vs. Income: The relationship affected by technological advancements.

• Malthusian Stagnation: How technological progress altered population income dynamics.

• Dynamic Economy Model: Role of innovation in economic development.

Economic Models and Concepts

1. Equilibrium: A self-sustaining state in an economy where external forces cause changes.

2. Ceteris Paribus: Holding other determinants constant to focus on specific economic effects.

3. Incentives and Relative Prices: Determine decisions made by firms and consumers.

4. Economic Rent: Extra benefits gained from choosing a preferred option over a reservation option.

Malthusian Economics

• Stagnation before the Industrial Revolution:

  • Average income uniform near subsistence until 1800.

  • Population growth constrained by resource availability.

• Malthusian Trap:

  • Income growth leads to population increases, resulting in resource strain and decreased living standards.

  • Questions about Malthus' theory and its implications on economic growth.

Technological Advancements and Their Impact

• Radical changes in production methods led to breakthroughs in the economy.

• Technology influences labor-market dynamics, reshaping decisions in production.

Model of Innovation

• Key Concepts:

  1. Ceteris Paribus: Aids in decision-making by isolating variables.

  2. Incentives: Rational choices by firms to maximize profits.

  3. Relative Prices: Using opportunity cost for decision-making.

  4. Economic Rents: Profits derived from better technologies.

• Isocost Lines: Represent combinations of inputs for a given budget.

Conclusion and Future Directions

• Permanent Technological Revolution: How ongoing advancements change production and economic structures.

• Next Unit Topics: Focus on decision-making under constraints and responses to technological changes.