Econ Unit 2

Question 1

Malthusianism

Answer 1

Even if technology improved and raised the productivity of labor, people would still have more children as soon as they were somewhat better off. This population growth would continue until living standards fell to subsistence level, halting the population increase

Question 2

Equilibrium

Answer 2

A model that is self-perpetuating; something does not change unless an outside force is introduced

Question 3

Subsistence level

Answer 3

The level of living standards (measured by consumption or income) such that the population will not grow or decline

Question 4

Ceteris paribus

Answer 4

Setting aside things that are thought to be of less importance to the question of interest; ‘other things equal’ or in an economic model it means an analysis ‘holds other things constant’.

Question 5

Incentives

Answer 5

• Economic reward or punishment, which influences the benefits and costs of alternative courses of action.
• People are motivated by material gain and emotions

Question 6

Innovation rent

Answer 6

Making more profits than the competitor by using cheaper and new technology to produce the same good or service

Question 7

Economic rent

Answer 7

A payment or other benefit received above and beyond what the individual would have received in his or her next best alternative

Question 8

Technology

Answer 8

A process that uses inputs to produce an output

Question 9

Cost equation

Answer 9

Cost = (wage * workers) + (price of a ton of coal * number of tons)

Question 10

Isocost line

Answer 10

Combinations of inputs that have the same total cost

Question 11

The slope of an isocost line

Answer 11

The relative price of inputs: -w/p

Question 12

Change in relative prices in Britain

Answer 12

• Increase in wages relative to price of coal in Britain create the incentive to innovate more capital- intensive technologies
• If the price of coal falls relative to the wage, that is (-w/p) increases and the isocost line gets steeper

Question 13

Creative destruction

Answer 13

• Old technologies and the firms that do not adapt are swept away by the new, because they cannot compete in the market. In his view, the failure of unprofitable firms is creative because it releases labor and capital goods for use in new combinations
• Created by Joseph Schumpteter
• Essential fact about capitalism

Question 14

Production Function

Answer 14

Describes the relationship between the amount of output produced and the amounts of inputs used to produce it

Question 15

Diminishing average product of labor can be caused by:

Answer 15

• more labor devoted to a fixed quantity of land
• more (inferior) land brought into cultivation