ECO105_LEC03 - Notes for Lecture 3 Malthus in 1800 and...

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Notes for Lecture 3: Malthus in 1800 and Malthus 2000 [September 25, 2007] Economic Concepts : compound interest rule of 72, the concerns of Malthus, one variable input model, total physical product of labour, marginal physical product of labour [marginal productivity], average physical product of labour [average productivity], the four divisions of marginal productivity, the law of diminishing marginal productivity [returns], Malthus today and the poverty crisis, disguised unemployment, exogenous changes in the one variable input model, definition of sustainable development, the limits to growth scenario, the I = PAT equation, the pessimistic model and the optimistic model for economic growth. Features of Compound Interest If $1 were placed in a fund which grew at 1% [compounded] per period, then it would take 72 periods for $1 financial investment to grow to $2. This has been called the “Rule of 72". Similarly, a country which has a population growth rate of 1% per annum would double its population level in 72 years. But if the population growth rate were 2%, then the population would double in 36 years [72 divided by 2] and at 3%, the population would only take 24 years [72/3] to double. During the 1950's and 1960's, many developing countries in Africa, Asia and Latin America experienced population growth rates approaching 3% per annum and Nigeria still does. The Concern of Malthus [Essay on Population in 1799] Malthus was concerned about the increases in the rate of population growth measured against the rate of growth of food production in Europe in future generations in the nineteenth century. By observation, population was doubling every generation in Europe. However, increases in the availability of food in Europe were growing much more slowly. Malthus was concerned that, in some future generation, there would be a severe shortage of food and therefore both starvation and death from wars [over land acquisition] would occur as a control on population growth. Population checks through increased in the death rate greatly disturbed Malthus. Malthus advocated a control of population growth through a reduced birth rate i.e., each family to have a smaller number of children which would reduce the rate of population growth. The One Variable Input Model [land in fixed supply with labour variable] Assume that grain [wheat] is grown with land fixed [e.g. ., on a specific field] with a variable input, labour. No changes in weather conditions or technology are allowed i.e., EXO is initially barred in the production function. When workers are incrementally added to this field, initially there would be positive and increasing incremental [marginal] outputs. But at some point, the positive increment in output would be less than the previous increment in output. At this labour input, diminishing marginal productivity [returns] would start to be experienced. This is a physical law which must always hold.
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This note was uploaded on 04/17/2008 for the course ECON 105 taught by Professor Hare during the Fall '07 term at University of Toronto.

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ECO105_LEC03 - Notes for Lecture 3 Malthus in 1800 and...

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