1. Llad Phillips1 Introduction to Economics Microecomomics The US Economy

2. Llad Phillips2 Lecture Eleven n The enduring questions in economics n The population explosion and Malthusian economics n The economics of colonialism and exploitation n Karl Marx and economic thought

3. Llad Phillips3 Why Do Civilizations Rise and Fall? n Where does the wealth and power of nation states come from? n Is growth a good or bad thing or a mixed bag? n Are energy resources going to run out or will technological change save the day? n Will population growth doom the planet?

4. Course Grading If you complete over 70 % of both the text Problems and Lab Exercises, then your course grade is increased by 1/3 grade point

5. Llad Phillips5 Part I: Growth

6. Llad Phillips6 Is Globalization and Growth a Good Thing? n World Trade Organization u China wants in, gets in September 2001 u protestors at Seattle, Washington D. C. n Multinational Corporations u Sweatshops for women and children

7. Llad Phillips7 Is Globalization & Growth Good? n Trade benefits both parties n Growth leads to higher income per capita n Higher GDP per capita countries have more equitable distributions of income n Aren’t single commodity countries vulnerable n Isn’t growth exhausting the worlds resources and polluting the oceans? For Against

8. Llad Phillips8 Protesting Globalization

9. Llad Phillips9 The Pro-Growth Argument n Growth lifts all boats u Low income economies grow faster and catch up: convergence

10. Llad Phillips10 Text: Chapter 23, Figure 23.1 Are Low GDP Countries Catching Up: Convergence

11. Llad Phillips11 The Pro-Growth Argument n Trade Stimulates Growth u Example; Smoot-Hawley bill duing the great depression raised tariffs; a “beggar-your- neighbor” policy that led to retaliation u Example: coastal provences of China trade with the world and stimulate industry u Example: Renaissance- the City states of Italy, e.g. Venice prosper and support the arts u Example: Post-Elizabethan era- England and Holland prosper through trade

12. Llad Phillips12 China: Special Economic Zones

13. Llad Phillips13 The Pro-Growth Argument n Growth levels the playing field u Countries with a higher income per capita have a more equal distribution of income

14. Llad Phillips14 The Anti-Growth, Anti-Trade Argument n Rich get richer and the poor get poorer

15. Llad Phillips15 Share of World GDP Handbook of International Economic Statistics, 1997

16. Llad Phillips16 Source: CIA

17. Llad Phillips17 Handbook of International Economic Statistics, 1997 Market Size by GDP

18. Llad Phillips18 Handbook of International Economic Statistics, 1997 Five Classes of GDP per Capita $3001-$10000 $10100-$15000 $15001- $1000-3000- $1000

19. Llad Phillips19 Handbook of International Economic Statistics, 1997 Scale of World Trade Within and Between Major Regions

20. Llad Phillips20 The Anti-Growth, Anti-Trade Argument n The vulnerability of single-commodity countries u Coffee u oil

21. Llad Phillips21 Handbook of International Economic Statistics, 1997 Vulnerable Single Commodity Economies

22. Llad Phillips22 The Anti-Growth, Anti-Trade Argument n Growth destroys forests and pollutes oceans

23. Llad Phillips23 Forestry Industry Imports as % of Imports Handbook of International Economic Statistics, 1997

24. Llad Phillips24 Handbook of International Economic Statistics, 1997 Key Environmental Problem Areas

25. Llad Phillips25 Handbook of International Economic Statistics, 1997 Radiation Hotspots from Chornobyl Nuclear Accident

26. Llad Phillips26 CO 2 Emissions per Capita World Bank

27. Llad Phillips27 Does Anti-Globalization Have a Neo-Malthusian Basis? n Scarcity u Malthus:Food Producing Land is scarce, a fixed resource u Anti-G’s: Forests and oceans are limited n Infinite Supply of Labor u Malthus: Population expands if there is any surplus and gobbles it up u Anti-G’s: Population pressure is using up earth and this is accelerated by growth and trade

28. Llad Phillips28 Part II. Population Growth

29. Llad Phillips29 Population Over Time

30. Llad Phillips30

31. Llad Phillips31 Population Clocks n http://www.census.gov/population/www/ind ex.html http://www.census.gov/population/www/ind ex.html http://www.census.gov/population/www/ind ex.html n http://www.census.gov http://www.census.gov

32. Llad Phillips32 CA Population In Millions

33. Llad Phillips33 Malthusian Economics n Combines a population model and a production model

34. Llad Phillips34 Malthusian Prediction n Population would increase until it existed on a subsistence wage: Poor can not be helped n Thomas Malthus, Parson u Essay on the Principle of Population(1798) n Combined Two Ideas u Ben Franklin had noticed population in the colonies was growing exponentially, doubling every 25 years u David Ricardo argued that land was a fixed resource in England so that more labor would yield more output, but at a diminishing rate

35. Llad Phillips35 Neo-Malthusian Ideas n “Population Fatigue” u More people dying F India F Ethiopia F Pakistan F Nigeria n These countries are having trouble caring for increasing numbers of children u falling water tables, deforestation, erosion

36. Llad Phillips36 How 'Demographic Fatigue' Will Defuse the Population Bomb “ It was 200 years ago that English cleric Thomas Malthus warned that unchecked population growth could lead to famine, disease and conflict. His reasoning was simple: populations tend to increase faster than food supplies. “ Source: Newsweek,

37. Llad Phillips37 Adam Smith The Wealth of Nations(1776) n Competing idea: Limited Resources u Thomas Malthus: productive land is limited and population exhausts any surplus u underdeveloped countries u Green movement n Competing idea: Growing Resources Creates a Surplus u Capital accumulation: increased capital per worker increases output per worker and wages u Karl Marx: the capitalists will siphon off the surplus

38. Llad Phillips38 Outline: Lecture Eleven n Malthus, Ricardo u the Law of Diminishing Returns n Production n Input-Output Relationships n Guidelines for Managing Production International Society of Malthus; link Ch.2 http://www.igc.org/desip/malthus/index.html

39. Llad Phillips39 Why do some countries prosper, and others do not? n Ch. 22 “Classical Economics: the Economy at Full Employment” n Ch. 23 “Why Do Economies Grow? n Ch. 8 “Production and Cost”

40. Llad Phillips40 Population Production of Income Malthusian Growth Model: Some Resources are Limited if labor earns more than subsistence wage then population increases because of the law of diminishing returns, if population increases, then the wage falls back to subsistence

41. Llad Phillips41 Law of Diminishing Returns n One or More Inputs Fixed n Variation of Total Product with Variable Input n Example: u output: amount learned u variable input: hours spent studying u fixed input: human condition, attention span

42. Llad Phillips42 Law of Diminishing Returns n Agricultural Example u output: bushels of tomatoes u fixed input: 1/8 acre of land u variable input: number of workers tending tomatoes

43. Llad Phillips43 Output Input Bushels of Tomatoes number of workers Production Function Total Product Curve

44. Llad Phillips44 Perspective n Total Output n Total Wages n Total Surplus

45. Llad Phillips45 Output Input Food number of workers Production Function for the Malthus Society Total Product Curve Subsistence Wages = Subsistence Wage*# of Workers

46. Llad Phillips46 Output Input Food number of workers Production Function for the Malthus Society Total Product Curve Subsistence Wages = Subsistence Wage*# of Workers Surplus to Landowners

47. Llad Phillips47 Malthusian Story n What if wages to peasants exceeds the subsistence level of wages? u surplus

48. Llad Phillips48 Output Input Food number of workers Production Function Total Product Curve Subsistence Wages Peasant Surplus Peasant Wages

49. Llad Phillips49 Malthusian Story n If peasants have a surplus, more of them marry, form families, have children, and consume the surplus n Population increases and the number of workers increases n Output increases, but less than proportionally

50. Llad Phillips50 Output Input Food number of workers Production Function Total Product Curve Subsistence Wages Peasant Surplus Peasant Wages population (worker) increase

51. Llad Phillips51 Output Input Food number of workers Production Function Total Product Curve Subsistence Wages Peasant Surplus Peasant Wages population (worker) increase maximum population

52. Llad Phillips52 Malthusian World n Thomas Carlyle u economics is the “dismal science” n Thomas Hobbes, Leviathan(1651) u [In nature there is] continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.

53. Llad Phillips53 Population Production of Income Malthusian Growth Model: Some Resources are Limited if labor earns more than subsistence wage then population increases because of the law of diminishing returns, if population increases, then the wage falls back to subsistence

54. Llad Phillips54 Politics n Who gets the rest of the output? u landowners (landed aristocracy) F basis of feudal society F basis of colonial countries n Social tension between socio-economic classes

55. Llad Phillips55 Output Input Food number of workers Production Function Total Product Curve Subsistence Wages Peasant Surplus Peasant Wages Rent to the Landowners

56. Llad Phillips56 New World n Lots of land u land grants from royals in England and Spain n Labor is scarce u in many cases, colonists kill off the natives n What should a poor landowner do?

57. Llad Phillips57 Perspective n Average Product u food per worker

58. Llad Phillips58 Output Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  tan  = 10 bushels/ 5 workers = 2 bushels per worker Total Product Curve

59. Llad Phillips59 Output Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  tan  = 10 bushels/ 5 workers = 2 bushels per worker B  tan  = 12 bushels/ 8 workers = 1.5 bushels per worker 8 workers 12 bushels Total Product Curve

60. Llad Phillips60 Output, Total Product Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  B  8 workers 12 bushels Average Product A Bushels of Tomatoes Per Worker 2 1.5 B 5 workers 8 workers Input, # of workers Total Product Curve Average Product Curve

61. Llad Phillips61 Where Should You Produce? n At point B, 8 workers, where total output is maximum? n At point A, 5 workers, where average product is maximum? n How many consecutive hours should you study?

62. Llad Phillips62 Output, Total Product Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  B  8 workers 12 bushels Average Product A Bushels of Tomatoes Per Worker 2 1.5 B 5 workers 8 workers Input, # of workers Total Product Curve Average Product Curve

63. Llad Phillips63 Output, Total Product Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  B  8 workers 12 bushels Average Product A Bushels of Tomatoes Per Worker 2 1.5 B 5 workers 8 workers Input, # of workers Total Product Curve Average Product Curve

64. Llad Phillips64 Perspective n Marginal Product u change in output for a unit change in input u pay the marginal worker his/her contribution to output

65. Llad Phillips65 Output Input Bushels of Tomatoes number of workers Production Function 3 4  = 1 worker 9 3  = 6 tomatoes, bushels Marginal Product equals 6 bushels of tomatoes Total Product Curve

66. Llad Phillips66 Output Input Tomatoes number of workers 3 4  = 1 worker 9 3  = 6 tomatoes Marginal Product equals 6 tomatoes Marginal Product Bushels of Tomatoes Per Worker 6 0 Total Product Curve Marginal Product Curve Point of Diminishing Returns Input, # of Workers Bushels of bushels, bushels

67. Llad Phillips67 Output, Total Product Input Bushels of Tomatoes number of workers A 10 bushels 5 workers  B  8 workers 12 bushels Average, Marginal Product A Bushels of Tomatoes Per Worker 2 1.5 B 5 workers 8 workers Input, # of workers Total Product Curve Average Product Curve Marginal Product Curve 0

68. Llad Phillips68 Operating Range For the Firm n So, you only produce where marginal product is less than average product: MP < AP n Note: there is no point producing where MP is negative, you would be throwing away some output, so produce where 0 < MP < AP n Suppose marginal product exceeds average product, MP > AP =Q/L u if labor is paid its marginal product u then w/ p Q > Q/L u and so wL > p Q Q u i.e. variable costs exceed gross revenue, and you would not cover operating costs

69. Llad Phillips69 Average, Marginal Product A Bushels of Tomatoes Per Worker 2 1.5 B 5 workers 8 workers Input, # of workers Average Product Curve Marginal Product Curve Operating Range of the Firm: A through B

70. Llad Phillips70 Implication n Keep studying as long as the average amount learned per hour keeps increasing u once the average amount learned per hour starts decreasing F then consider taking a break

71. Llad Phillips71 Average, Marginal Product A B Input, # of workers Average Product Curve Marginal Product Curve Malthusian Model Subsistence Wage Sustainable # of workers

72. Llad Phillips72 Average, Marginal Product Input, # of workers Malthusian Model: Biblical Feast and Famine Subsistence Wage Sustainable # of workers APL MPL Higher Wage Things Improve: Temporarily: (1) MPL increases, wage exceeds subsistence, population increases, (2) MPL falls back, excess population dies off: famine and pestilence

73. Llad Phillips73 Average, Marginal Product Input, # of workers Malthusian Model Subsistence Wage Sustainable # of workers APL MPL Higher Wage Things Improve: Permanently: MPL increases, wage exceeds subsistence, population increases, # of workers increases until MPL equals subsistence wage, Net result: more people are miserable.

74. Llad Phillips74 http://www.worldwatch.org/

75. Llad Phillips75 Summary-Vocabulary-Concepts n Thomas Malthus n David Ricardo n law of diminishing returns n variable input n fixed input n subsistence wage n Malthusian growth model n total product curve n average product of labor n marginal product of labor n point of diminishing returns n real wage n operating range for the firm n Thomas Carlyle n Thomas Hobbes