Exam 1 review

Topics: Agriculture, Economic growth, Civilization Pages: 5 (1361 words) Published: February 3, 2015
Exam 1:

1. List 2 data sources researchers use to estimate historical standards of living and explain what they can infer from these sources. List three indicators of economic development other than National Income measures (NI, GDP, or GNP, level, growth rate, or per capita) that are of interest to economists and explain what can be inferred from each of these indicators. ( Topic 1)

2. Explain in detail 3 weaknesses of per capita GNP (or GDP) as a measure of economic well-being. Although this measure has the flaws you just listed (and others) it is the most oft-referenced statistic when considering standard of living differences across countries. Why? Problem with GDP:

1. Does not capture all economically important activities Black market/informal market-not captured-much more significant in lesser developed countries.Agricultural production for own consumption.Housework 2. Dollar value of a good does not always equal “social” value (e.g., no accounting for pollution costs). Relevant for industrialization standard of living debate. Keep in mind a crime wave or war increase G, but doesn’t make society better off. On the other hand, spending on schools and other things with positive spillovers also understate welfare in GDP. 3. Does not account for differences in “cost of living” across time and space Even if GDP per capita were a good measure of average income, comparisons across space and time would be hindered by the fact that the “cost of living” – that is, the cost of a certain bundle of goods or a certain lifestyle – is not the same in different societies (prices – housing prices in particular, taxes, etc.) Why

1. Widely available and easily comparable for many years for most countries. 2 Highly and predictably correlated with any other measure.

3. What has happened to global economic inequality since 1960? Why? Characterize the progress in social measures (education and health) in impoverished nations. Why is there less of a link between improvement in these measures and GDP than in the past? What happened in 1960:

Overall, the global economic inequality has been expanded.
a. Specifically, the globalization expanded economic inequality which means mostly developed countries become richer and developing countries are still poor. b. However, few developing countries such as China and India experienced tremendous economic improvement and reduced inequality. c. Almost 70% world income inequality is due to different across countries and 30% income inequality is within countries. Less link between life improvement and GDP

a. The relationship between income and life expectancy is not linear. b. According to Easterlin’s discussion, “human development is a necessary, but not sufficient condition for economic growth”. Health and education has improved more than economy.

4. Describe the North and Thomas model explaining the Neolithic Revolution. Specifically, use a graph to illustrate how population growth affected this change. How is this model consistent with what we know about the transformation from Hunter-Gatherers to Settled Agriculturists?

In the North and Thomas model, at the beginning, the hunting is more productive than agriculture and has initial CRS which means double population can have double yield. Then, when population increase to a certain level, the returns begin to diminish which means more population can not result same increase in output. However, the agriculture always has CRS. As population continues increasing, VMP of hunting intersects with VMP agriculture at Qc, and then the returns from agriculture begin to be more than hunting. In this case, more people transit from hunting to agriculture. Also, the land is plentiful while the game is going to be exhausted. How consistent with transformation from hunting to agriculture (topic 2) a.Extinction of mammoths implies the return from hunting begin to diminish. Due to...
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