Introduction to Economics
Microecomomics
The US Economy
Llad Phillips
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Lecture Eleven
The enduring questions in economics
 The population explosion and Malthusian
economics
 The economics of colonialism and
exploitation
 Karl Marx and economic thought

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Why Do Civilizations Rise and Fall?
Where does the wealth and power of nation
states come from?
 Is growth a good or bad thing or a mixed
bag?
 Are energy resources going to run out or
will technological change save the day?
 Will population growth doom the planet?

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Course Grading
Quiz
Midterm
Final
Course
40
80
169
289
If you complete over 70 % of both the text Problems and Lab
Exercises, then your course grade is increased by 1/3 grade point
Part I: Growth
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Is Globalization and Growth a
Good Thing?

World Trade Organization
 China
wants in, gets in September 2001
 protestors at Seattle, Washington D. C.

Multinational Corporations
 Sweatshops
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for women and children
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Is Globalization & Growth Good?



For
Trade benefits both
parties
Growth leads to higher
income per capita
Higher GDP per capita
countries have more
equitable distributions
of income
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

Against
Aren’t single
commodity countries
vulnerable
Isn’t growth
exhausting the worlds
resources and
polluting the oceans?
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Protesting Globalization
Event
Seattle
Date
Organization # of
Protestors
12/99
WTO
50,000
Washington 4/00
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Quebec
4/01
Genoa
7/01
World Bank- 10,000
IMF
Summit of
30,000
the
Americas
G-8
150,000
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The Pro-Growth Argument

Growth lifts all boats
 Low
income economies grow faster and catch
up: convergence
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Are Low GDP Countries Catching Up: Convergence
Text: Chapter 23, Figure 23.1
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The Pro-Growth Argument

Trade Stimulates Growth
 Example;
Smoot-Hawley bill duing the great
depression raised tariffs; a “beggar-yourneighbor” policy that led to retaliation
 Example: coastal provences of China trade with
the world and stimulate industry
 Example: Renaissance- the City states of Italy,
e.g. Venice prosper and support the arts
 Example: Post-Elizabethan era- England and
Holland prosper through trade
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China: Special Economic Zones
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The Pro-Growth Argument

Growth levels the playing field
 Countries
with a higher income per capita have
a more equal distribution of income
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The Anti-Growth, Anti-Trade
Argument

Rich get richer and the poor get poorer
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Share of World GDP
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Handbook of International Economic Statistics, 1997
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Source: CIA
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Market Size by GDP
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Handbook of International Economic Statistics,17 1997
$15001$10100-$15000
$3001-$10000
Five Classes of GDP per Capita
$1000-3000
- $1000
Handbook of International Economic Statistics, 1997
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Scale of World Trade Within and Between Major Regions
Handbook of International Economic Statistics, 1997
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The Anti-Growth, Anti-Trade
Argument

The vulnerability of single-commodity
countries
 Coffee
 oil
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Vulnerable Single Commodity Economies
Handbook of International Economic Statistics, 1997
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The Anti-Growth, Anti-Trade
Argument

Growth destroys forests and pollutes oceans
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Forestry Industry Imports as % of Imports
Handbook of International Economic Statistics, 1997
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Key Environmental Problem Areas
Handbook of International Economic Statistics, 1997
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Radiation Hotspots from Chornobyl Nuclear Accident
Handbook of International Economic Statistics, 1997
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CO2 Emissions per Capita
World Bank
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Does Anti-Globalization Have a
Neo-Malthusian Basis?

Scarcity
 Malthus:Food
Producing Land is scarce, a fixed
resource
 Anti-G’s: Forests and oceans are limited

Infinite Supply of Labor
 Malthus:
Population expands if there is any
surplus and gobbles it up
 Anti-G’s: Population pressure is using up earth
and this is accelerated by growth and trade
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Part II. Population Growth
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Population
Over Time
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Population Clocks
http://www.census.gov/population/www/ind
ex.html
 http://www.census.gov

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CA Population In Millions
July ‘00 July ‘05 July ‘10 July ‘15 July ‘20
34.48
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37.47
40.26
42.71
45.82
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Malthusian Economics

Combines a population model and a
production model
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Malthusian Prediction
Population would increase until it existed on
a subsistence wage: Poor can not be helped
 Thomas Malthus, Parson

 Essay

on the Principle of Population(1798)
Combined Two Ideas
 Ben
Franklin had noticed population in the
colonies was growing exponentially, doubling
every 25 years
 David Ricardo argued that land was a fixed
resource in England so that more labor would
yield more output, but at a diminishing rate
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Neo-Malthusian Ideas
 “Population
More
Fatigue”
people dying
 India
 Ethiopia
 Pakistan
 Nigeria

These countries are having trouble caring
for increasing numbers of children
 falling
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water tables, deforestation, erosion
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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,
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
Adam Smith
The Wealth of Nations(1776)
Competing idea: Limited Resources
 Thomas
Malthus: productive land is limited and
population exhausts any surplus
 underdeveloped countries
 Green movement

Competing idea: Growing Resources
Creates a Surplus
 Capital
accumulation: increased capital per
worker increases output per worker and wages
 Karl Marx: the capitalists will siphon off the
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Outline: Lecture Eleven

Malthus, Ricardo
 the
Law of Diminishing Returns
Production
 Input-Output Relationships
 Guidelines for Managing Production

International Society of Malthus; link Ch.2
http://www.igc.org/desip/malthus/index.html
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Why do some countries prosper,
and others do not?
Ch. 22 “Classical Economics: the Economy
at Full Employment”
 Ch. 23 “Why Do Economies Grow?
 Ch. 8 “Production and Cost”

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Malthusian Growth Model: Some Resources are Limited
Population
if labor earns more than subsistence wage
then population increases
Production of Income
because of the law of diminishing returns, if population
increases, then the wage falls back to subsistence
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Law of Diminishing Returns
One or More Inputs Fixed
 Variation of Total Product with Variable
Input
 Example:

 output:
amount learned
 variable input: hours spent studying
 fixed input: human condition, attention span
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Law of Diminishing Returns

Agricultural Example
 output:
bushels of tomatoes
 fixed input: 1/8 acre of land
 variable input: number of workers tending
tomatoes
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Production Function
Total
Product Curve
Output
Bushels of
Tomatoes
Input
number of workers
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Perspective
Total Output
 Total Wages
 Total Surplus

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Production Function for the Malthus Society
Total
Product Curve
Output
Food
Subsistence
Wages =
Subsistence Wage*# of Workers
Input
number of workers
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Production Function for the Malthus Society
Total
Product Curve
Output
Food
Subsistence
Wages =
Subsistence Wage*# of Workers
Surplus to Landowners
Input
number of workers
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Malthusian Story

What if wages to peasants exceeds the
subsistence level of wages?
 surplus
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Production Function
Output
Food
Total
Product Curve
Peasant
Wages
Peasant
Surplus
Subsistence
Wages
Input
number of workers
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Malthusian Story
If peasants have a surplus, more of them
marry, form families, have children, and
consume the surplus
 Population increases and the number of
workers increases
 Output increases, but less than
proportionally

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Production Function
Output
Food
Total
Product Curve
Peasant
Wages
Peasant
Surplus
Subsistence
Wages
Input
population (worker) increase
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number of workers
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Production Function
Output
Food
Total
Product Curve
Peasant
Wages
Peasant
Surplus
Subsistence
Wages
maximum
population
Input
population (worker) increase
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number of workers
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Malthusian World

Thomas Carlyle
 economics

is the “dismal science”
Thomas Hobbes, Leviathan(1651)
 [In
nature there is] continual fear, and danger of
violent death; and the life of man, solitary, poor,
nasty, brutish, and short.
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Malthusian Growth Model: Some Resources are Limited
Population
if labor earns more than subsistence wage
then population increases
Production of Income
because of the law of diminishing returns, if population
increases, then the wage falls back to subsistence
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Politics
 Who
gets the rest of the output?
landowners
(landed aristocracy)
 basis
of feudal society
 basis of colonial countries

Social tension between socio-economic
classes
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Rent to the Landowners
Output
Food
Production Function
Total
Product Curve
Peasant
Wages
Peasant
Surplus
Subsistence
Wages
Input
number of workers
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New World

Lots of land
 land

Labor is scarce
 in

grants from royals in England and Spain
many cases, colonists kill off the natives
What should a poor landowner do?
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Perspective

Average Product
 food
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per worker
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Total
Product Curve
Output
A
Bushels of
Tomatoes
10 bushels

5 workers
Input
number of workers
tan = 10 bushels/ 5 workers = 2 bushels per worker
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B
Total Product
Curve
Output
A
Bushels of
Tomatoes
12 bushels
10 bushels


5 workers
8 workers
Input
number of workers
tan = 10 bushels/ 5 workers = 2 bushels per worker
tan = 12 bushels/ 8 workers = 1.5 bushels per worker
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B
Output,
Total Product
A
12 bushels
Bushels of
Tomatoes
10 bushels

Average
Product
Bushels of
Tomatoes
2
Per Worker
Total Product Curve

5 workers
Input
8 workers
A
B
1.5
Average Product Curve
Input, # of workers
5 workers
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number of workers
8 workers
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Where Should You Produce?
At point B, 8 workers, where total output is
maximum?
 At point A, 5 workers, where average
product is maximum?
 How many consecutive hours should you
study?

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B
Output,
Total Product
A
12 bushels
Bushels of
Tomatoes
10 bushels

Average
Product
Bushels of
Tomatoes
2
Per Worker
Total Product Curve

5 workers
Input
8 workers
A
B
1.5
Average Product Curve
Input, # of workers
5 workers
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number of workers
8 workers
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B
Output,
Total Product
A
12 bushels
Bushels of
Tomatoes
10 bushels

Average
Product
Bushels of
Tomatoes
2
Per Worker
Total Product Curve

5 workers
Input
8 workers
A
B
1.5
Average Product Curve
Input, # of workers
5 workers
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number of workers
8 workers
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Perspective

Marginal Product
 change
in output for a unit change in input
 pay the marginal worker his/her contribution to
output
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Production Function
Total
Product Curve
Output
Bushels of
Tomatoes
9
3
=6
tomatoes,
bushels
Marginal Product equals
6 bushels of tomatoes
 = 1 worker
3 4
Input
number of workers
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Output
Total Product Curve
Bushels of Tomatoes
9
Marginal Product equals
6 tomatoes , bushels
=6
tomatoes
3
bushels
 = 1 worker
3 4
Input
number of workers
Marginal
Product
Point of Diminishing Returns
6
Bushels of
Tomatoes
Per Worker
0
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Marginal Product Curve
Input, # of Workers
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B
Output,
Total Product
A
Total Product Curve
12 bushels
Bushels of
Tomatoes
10 bushels

Average,
Marginal
Product
Bushels of
Tomatoes 2
Per Worker

5 workers
Input
8 workers
Marginal Product Curve
A
B
1.5
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0
number of workers
Average Product Curve
Input, # of workers
5 workers
8 workers
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Operating Range For the Firm



So, you only produce where marginal product is
less than average product: MP < AP
Note: there is no point producing where MP is
negative, you would be throwing away some
output, so produce where 0 < MP < AP
Suppose marginal product exceeds average
product, MP > AP =Q/L
 if labor is paid its marginal product
 then w/ pQ > Q/L
 and so wL > pQ Q
 i.e. variable costs exceed gross revenue, and
you would not cover operating costs
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Average,
Marginal
Product
Marginal Product Curve
Average Product Curve
Bushels of
Tomatoes
Per Worker
A
2
1.5
B
Input, # of workers
5 workers
8 workers
Operating Range of the Firm: A through B
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Implication
 Keep
studying as long as the average
amount learned per hour keeps
increasing
once
the average amount learned per hour
starts decreasing
 then
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consider taking a break
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Malthusian Model
Average,
Marginal
Product
Marginal Product Curve
A
Average Product Curve
B
Subsistence Wage
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Sustainable #
of workers
Input, # of workers
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Malthusian Model: Biblical Feast and Famine
Average,
Marginal
Product
Higher
Wage
Things Improve:
Temporarily: (1) MPL increases, wage
exceeds subsistence, population increases,
(2) MPL falls back, excess population
dies off: famine and pestilence
MPL
APL
Subsistence Wage
Sustainable #
of workers
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Input, # of workers
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Malthusian Model
Average,
Marginal
Product
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.
MPL
APL
Subsistence Wage
Sustainable #
of workers
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Input, # of workers
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http://www.worldwatch.org/
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Summary-Vocabulary-Concepts









Thomas Malthus
David Ricardo
law of diminishing
returns
variable input
fixed input
subsistence wage
Malthusian growth
model
total product curve
average product of
labor
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





marginal product of
labor
point of diminishing
returns
real wage
operating range for the
firm
Thomas Carlyle
Thomas Hobbes
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