Unit 2: Technology,
Population and Growth
• The economy is very complex:
• What happens in the economy depends on the interdependent behaviours and
decisions of millions of individuals (our decisions affect the behaviours of others,
and others’ decision affect our own behaviour).
• It is impossible to understand the economy by describing every detail of
our interactions
• We use models to see the big picture.
Economic models
Models (and theories) abstract
from reality to focus attention
on the key determinants of an
outcome.
Equilibrium
In economics, many models
show how interactions
generate an equilibrium, and
how a change in conditions
affects this equilibrium.
What is an equilibrium?
• It is a situation that is self-perpetuating
• capable of continuing indefinitely.
• An equilibrium does not change unless an
outside/external force for change is
introduced that alters the model’s description
of the situation.
A new equilibrium
A new equilibrium
• The steel market is in equilibrium at
price P1 and quantity Q1
• The supply of steel falls due to a
rise in the price of iron (an input
into steel production).
• The steel market moves to a new
equilibrium price (P2) and new
equilibrium quantity (Q2).
Abstraction
By abstracting from
some elements of reality,
a (good) map is a useful
tool for getting around.
Abstraction
By abstracting from some elements of reality, a (good) economic
model is a useful tool for understanding an economic system.
Economic models
• Models can be presented verbally, mathematically, or graphically.
• Good economic models are clear, accurate, and useful.
• This helps us to test economic theories, infer causation, and
forecast.
Not all model simplifications are justified..
George E.P. Box
All models are approximations.
Assumptions, whether
implied or clearly stated, are
never exactly true. All models
are wrong, but some models are
useful. So, the question you
need to ask is not "Is the
model true?" (it never is) but
"Is the model good enough
for this particular
application?"
George E.P. Box
"A theory that
explains everything,
explains nothing"
- Karl Popper (1902 – 1994)
History’s hockey stick
• Before the 18th and 19th centuries, most people were at or near subsistence levels of
income (earned just enough to stay alive).
England, 1270 - 2016
History’s hockey stick
• If incomes dropped any further, mortality increased (more people died at younger ages).
England, 1550 - 2018
England, 1841 - 2018
History’s hockey stick
• Population levels were constrained (held back) by the ability of families to provide for
their basic necessities (food, shelter, clothing).
England, 1270 - 2013
The sustained and dramatic increases in average
incomes following the industrial revolution effectively
removed the constraint on population growth.
Other factors (e.g., scientific advances in medicine)
were also important.
Today and in the future, lower fertility, rather than
mortality, will constrain population growth (peak
world population expected at around 2100).
Living standards
stayed more or
less the same
for hundreds of
years.
Population levels
were constant.
Living standards stayed
more or less the same
for hundreds of years.
Population levels grew
very slowly.
Living standards
grew at an
increasing rate.
Population levels
grew faster.
Malthusian economics
• Malthus 1798: “Misery for the human race”
• Despite gains of technological advances — in
particular rising income per capita — nations will never
be able to sustain increasing incomes per capita.
• Malthus proposed that as people’s income increased,
they would have a desire to have more children as
affordability within the household increased.
• Eventually, population growth would outstrip
resources (especially land) and living standards would
decrease.
• This would then lead to a halt in population growth.
Thomas Malthus, 1766-1834
Malthusian economics
"Elevated as man is above all other animals by
his intellectual facilities, it is not to be
supposed that the physical laws to which he is
subjected should be essentially different from
those which are observed to prevail in other
parts of the animated nature.”
~ Thomas Robert Malthus, A Summary View on the
Principle of Population (1830)
Thomas Malthus, 1766-1834
Malthusian thinking
“The power of population is so
superior to the power of the earth to
produce subsistence for man, that
premature death must in some shape
or other visit the human race.”
Famine thought of as an “effective
mechanism for reducing surplus
population.”
Charles Trevelyan
(Assistant Secretary to the Treasury)
Malthusian Model
• Malthusian theory provides an explanation for why incomes
remained around subsistence levels for hundreds of years
• Equilibrium à self-perpetuating
Hypothesis:
o As people’s incomes increase, they will
have a desire to have more children à
population growth
o Eventually, population growth will
outstrip the available resources and
living standards will decrease
o Falling living standards will halt
population growth
Income levels and population are inversely related
Malthusian Model
Imagine an agricultural economy that
produces just one good, grain.
Suppose that the production of grain is
very simple i.e. requires little if any capital.
Labour and land are factors of production;
i.e. they are inputs into the production
process.
We also suppose that the amount of land
is fixed and all of the same quality.
The Gleaners, by Jean-Francois (1857)
Malthusian Model
This model abstracts from most aspects
of food production and makes two key
assumptions:
1. The production function has a
diminishing average product of
labour.
!"#$%&# '$()*+, (- .%/(*$ =
,(,%. '$()*+,
1*2/#$ (- -%$2#$3
2. Population increases when the
average product exceeds
subsistence.
The Gleaners, by Jean-Francois (1857)
Production functions
Production functions can be precisely expressed in 3 ways:
As an equation:
!=# $
i.e. Y is a
function of X.
As a table:
As a figure:
Production functions
With 800 farmers
• The total product is
500,000 kg
• The average product of
labour is 500,000/800 =
625 kg.
With 1600 farmers
• The total product is
732,000 kg.
• The average product of
labour is 732,000/1,600
= 458 kg.
This concave production
function has a diminishing
average product of labour.
Kg of grain produced (thousands)
900
800
B
700
600
A
500
400
300
Slope = ∆y/ ∆x = (500,000 – 0)/(800– 0) = 625
200
100
Slope = ∆y/ ∆x = (732,000 – 0)/(1,600 – 0) = 458
0
0
400
800
1200
1600
2000
Number of farmers
2400
2800
Why does the average product diminish?
More labour is devoted to a
fixed quantity of land.
Inferior land is brought into
cultivation.
Population rises
Farmer’s
incomes rise
Average output
per farmer rises
Less land per
farmer
Average output
per farmer falls
Improvement in
technology
Farmers’
income fall
Equilibrium
Equilibrium
Subsistence
incomes prevail
Subsistence
incomes prevail
Population
constant
Population
constant at
higher level
“Malthus’ Law”
or
“the iron law of
wages”
Is there evidence to support Malthusian theory?
Figure 2.1 depicts population and
real wages from 1260 to 2001.
Between 1260 and 1600, real wages
remained constant.
Between 1500 and 1600, there was
some increase in the population —
although it may have just been a
return to pre-1350 levels (Black
Death killed at least a third of people
living in England).
There was no sustained nor rapid
growth in technology over this
period.
Is there evidence to support Malthusian theory?
Figure 2.18 depicts the relationship
between the population and real
wages from 1280 to 1600.
Negative relationship between real
wages and the size of the
population.
Population growth à decrease in
income
(Population decline à increase in
income)
Supports Malthus’ theory
Is there evidence to support Malthusian theory?
From 1600 to 1800, real wages
remained constant, but the
population began to grow as
technology improved.
Britain was still stuck in a
Malthusian trap.
Escaping the Malthusian trap
Britain was stuck in a Malthusian
trap from 1280 to 1600 and
again from 1740 to 1800.
Escaping the Malthusian trap
Britain escaped from the
Malthusian trap around about
1800.
Escaping the Malthusian trap
This was because:
• the average product of
labor grew faster than the
population.
• improvements in sanitation
and medicine improved
health in the 19th century.
• contraception and family
planning slowed
population growth in the
20th century.
Revising Malthus’ Law
3 conditions are required to stay in the Malthusian trap:
• Diminishing average product of labour
• Rising population in response to increases in wages
• An absence of a permanent improvements in technology to offset
the diminishing average product of labour
Revising Malthus’ Law
3 conditions are required to stay in the Malthusian trap:
• Diminishing average product of labour
• Rising population in response to increases in wages
• An absence of a permanent improvements in technology to offset
the diminishing average product of labour
The permanent technological revolution meant that the third
condition no longer held and explains why Britain was able to escape
the Malthusian trap.
Malthusian economics debunked
• Ultimately, we know now that Malthus’s model was wrong: a
sustained increase in living standards did occur (in Britain and
later many/most other countries)
• All economic models are wrong in some way. No economic
model can explain everything
• We need a different model to explain the escape from the
“Malthusian trap”
And so, seeing as the industrial revolution is the answer…why
did it occur?