Chapter 1 The Capitalist Revolution.

Contents

Chapter 1 The Capitalist Revolution.Chapter 2 – Technology, Population and Growth.Chapter 3 – Scarcity, Work and Choice.Chapter 4 – Social Interactions.

Chapter 5 – Property and Power: Mutual Gains and Conflict.

Chapter 6 – The Firm: Owners, Managers and Employees.

Chapter 7 – The Firm and its Customers.

Chapter 8 – Supply and Demand: Price-taking and Competitive Markets.

Chapter 9 – The labour market: wages, profits and unemployment.

Chapter 10 – Banks, money and the credit market.Chapter 11 – Rent-seeking, Price-setting, and Market Dynamics.Chapter 12 – Markets, Efficiency and Public Policy Chapter 13 – Economic fluctuations and unemployment.Chapter 14 – Unemployment and fiscal policy.Chapter 15 – Inflation, unemployment, and monetary policy.Chapter 16 – Technological progress, employment, and living standards in the long run

Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial

Crisis

CHAPTER 18 : ECONOMICS AND THE ENVIRONMENT

Chapter 19 – Capstone: Economic Inequality.

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Chapter 1 : The Capitalist Revolution

1.1 HISTORY’S HOCKEY STICK: GROWTH IN INCOME

Ordinary scale – useful to comparing the levels of GDP per capita across countries

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Ratio scale

• Useful to comparing growth rates across countries.
• A series that grows at a constant rate looks like a straight line. This is because the

percentage (or proportional growth rate) is constant.

• A steeper line in the ratio scale chart means a faster growth rate.

- growth rate of 100%: that means the level doubles

• if GDP per capita doubled over 100 years from a level of $500 to $1,000, the line would

have the same slope as a doubling from $2,000 to $4,000 dollars, or from $16,000 to $32,000 over 100 years.

• If the level quadrupled (from say, $500 to $2,000 over 100 years), the line would be twice

as steep, reflecting a growth rate that was twice as high.

We learn two things from Figures 1.1a and 1.1b:

• For a very long time living standards did not grow in any sustained way.
• When sustained growth occurred it happened at different times in different countries,

leading to vast differences between living standards around the world.

Growth rate of GDP, we mean the rate of change:

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1.2 MEASURING INCOME AND LIVING STANDARDS

Estimate of living standards, GDP per capita - a measure of total income (and output) in a country (called gross domestic product, or GDP), which is then divided by the country’s population.GDP is a measure of the total output of the economy in a given period, such as a year

Three important points to remember about measuring average living standards in a country:

• GDP is a measure of total income in a country; to get an average measure, GDP is

divided by population, giving GDP per capita.

• GDP per capita is not the same as the disposable income of a typical person. (Disposable

income : Income available after paying taxes and receiving transfers from the

government.)

• A person’s disposable income is a measure of his or her living standards, but it omits

important aspects of wellbeing.

Disposable income : Income available after paying taxes and receiving transfers from the government.

• Amount of wages or salaries, profit, rent, interest and transfer payments from the government

(such as unemployment or disability benefit) or from others (for example, gifts) received over a given period such as a year, minus any transfers the individual made to others including taxes paid to the government

• Good measure of living standards : it is the maximum amount of food, housing, clothing and

other goods and services that the person can buy without having to borrow

- Limitations :

 The quality of our social and physical environment such as friendships and clean air. Goods and services that we do not buy, such as healthcare and education if they are provided by a government. Goods and services that are produced within the household, such as meals or childcare (predominantly provided by women)  The same average income may result from very different distributions of income between rich and poor within a group, average income may fail to reflect how well off a group of people is by comparison to some other group. Disposable income does not include the goods and services produced by the government, such as schooling, national defence, and law enforcement. (but included in GDP)

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