Understanding Business Organizations, Technology, and Innovation in Economics 101, Sintesi del corso di Economia Politica

Scarica Understanding Business Organizations, Technology, and Innovation in Economics 101 e più Sintesi del corso in PDF di Economia Politica solo su Docsity! UNIT 1 – THE CAPITALIS REVOLUTION Capitalisim happened with the Industrial Revolution and produced changes in the economic system (creating differences between countries). Equality= everyone have exactly the same. Equity= based on the needs of individuals. We can measure inequality through the Gini Coefficient indicator that indicate how much disparities there are in income, it is based on Lorenz Curve statistical calculation. We can also measure the quality of life through GDP per capita that is a measure of total income and outcome in a country divided by the population of it, or with Disposable Income that is a measure of living standards that omits aspects of well being ( Tot Income – Taxis + Government transfers) but both are imperfect measures. Before the Industrial Revolution growth of population means less resources until there was an increase in technology and population (greater production). The technological revolution changed the way in which goods were produced reducing the time. This had also an impact on the environment due an expansion of the economy, as bad consequences we have climate change, pollution and deforestation. Technologies could also provide solutions. Capitalism Revolution which introduced a new economic system was characterized also by a new combination of institutions = set of laws and social consumes governing the production and distribution of goods and services. The institution are based on Private Property = enjoy your possession, exclude others from their use. Markets = a way for people to exchange products and services for their mutual benefits through a process of selling. Firms = business organization that use inputs to produce outputs and set prices. UNIT 2 - TECHNOLOGY, POPULATION AND GROWTH Malthusianism state that growth in population would continue until living standards fell sufficiently to stop the increase in population. It is a vicious circle of poverty that was broken by the Industrial Revolution. Advance in technology raised the amount that a person could produce in a given amount of time allowing incomes to rise as the population itself. EQUILIBRIUM is a situation that is self-perpetuating and something does not change until a force for change is introduced from outside. What is a technology? The goal of the firm is to do much profit as possible, firm calculate the costs of any combination of inputs multiplying the number of workers by the wage and tonnels of material by the price of it. ISOCOST line= a line that represents all the combinations that cost a given total amount A factor that promote the diffusion of new technologies in the Industrial Revolution was a wage growth a a falling energy costs (cheaper transportation) According to Malthusiam economic Factor of Production= input in the production cost as labour + land Average Production is the total output divided by the total n. of workers To understand what happen if the population grows we need a production function = describe the relationship between the amount of outputs produced and the amount of inputs used to produce it. More farmers means more grain but the average production of labour falls = Diminishing Average Population expands if living standard increase until there is less = Subsistence Level that is the level of living standards such that the population will not grow or decline. So Malthusian model is based on an equilibrium in which the income level is sufficient to allow a Subsistence Level. England escape from this model, wages remain high compared to the price of material and also increase. The permanent and faster technological revolution increased the average living standard and also population and wages. UNIT 3 – SCARCITY, WORK AND CHOICE We took as example Alexei, his production function that translate the n° of hours per day spend studying into a percentage grade. We can also calculate his Average Product = total output divided by an input. Alexei Marginal Product = additional amount of output that is produced if a particular input was increased by one unit. The marginal product can diminishing: Diminishing Return= a situation in which the use of an additional unit of a factor of production results in a smaller increase in output than the previous increase. We have to suppose he is indifference between two preferences with the same utility, we can identify the indifference curve that indicates the combinations of good that provide a given level of utility. If we are indifferent the combination that has more of one good must have less of the other good. If we move to the right up we have combination with more of both goods. ((they can’t cross and become flatter on the right down. The MRS Marginal Rate of Substitution = trade off that a person is willing to make between two goods. If we move higher the MRS increase while if we move to the right the MRS decrease. To get more free time Alexei has to forgo the opportunity of getting higher grade. Economic Cost = The out-of-pocket cost of n action + the opportunity cost Economic Rent = A benefit receive above and beyond what the individual would have received in his next best alternative (Benefit – Economic Cost) Alexei has to chose between grades and free time and we need to understand the alternative available. The Feasible Frontier = the curve made of point that defines the maximum feasible quantity. Any combination of free time and final grade on /or inside the frontier is feasible. The feasible frontier sows the MRT Marginal Rate o Transformation = the quantity of some good that must be sacrificed to acquire one additional unit of another good. Alexei maximizes his utility where the indifference curve is tangent to the feasible frontier. The Optimal Combination is where MRS = MRT The Budget Constraint shows [C=W(24-t)] an equation that represents all the combination of good and services that one could buy. Income Effect= effect that one additional income would have if there were no change in the price or opportunity cost Effects of taxes: Taxes are used by government to rise revenue or affect the allocation of goods and services. With the tax the supply curve shift tot % higher at each quantity so the new equilibrium is a a lower quantity of that good at a higher price. As effect the consumer surplus fall (it pay higher price) and also the producer surplus fall (they produce less and receive a lower price) So the total surplus is lower causing DWT Death Weight Loss. Taxes can be a measure of welfare, if government spend revenues providing basic goods and services that tax can enhance public welfare, if it use on activities that does not contribute to citizen’s well being we have a reduction of living standards. The model of perfect competition: a perfect competitive market has these properties: 1. The good/services exchanged is homogenous 2. Very large n° of potential sellers and buyers 3. Buyers and sellers all act independently 4. Price info easily available to buyers and sellers and has to be transparent. Perfect competition requires that consumers are sufficiently sensitive to price to force firms to compete. UNIT 12 MARKET, EFFICIENCY AND PUBLIC POLICY Example: banana plantation owners used pesticides to reduce costs and increase profits, the chemical flow in the river contaminating local seafood and locals. Growing banana with pesticides involved cost private but also public (health). Conditions for the market to work well: private property (the possibility to claim the right thing bought or sold. Institutions: are required to enforce property rights. Social norms used to respect property rights. Ability to write complete and enforceable contracts that can be evaluated in a court of law. Market can fail when these conditions are missing. In case we can have external effects as pollution. It is an effect of an economic decision that is not specified as a benefit in the contract. Negative externalities leads to overproduction and overuse. MPC Marginal private cost is the marginal cost of producing banana. MEC is the Marginal external cost imposed by banana growers on fisherman (it is the reduction in quantity and quality of fish). MPC + MEC = MSC Marginal Social Cost To maximise the profit plantation produce where price is = to MPC but this does not include the costs imposed on fisherman. The Pareto efficient level is where price is = MSC. Solution1 : Fishermen and plantation owners could negotiate a private bargain = Coasean Bargaing With a negotiation they both could gain from an agreement to reduce output to the Pareto Efficient level. Reducing the output means reduce the profit of plantation, the Loss of Profit is = to the Loss of Producer Surplus. Since the gain for fisherman is major than the loss of profit of the plantation, fisherman willing to pay banana growers to reduce their output. The minimum acceptable offer is = to the loss profit, if plantation owner accept fishing industry will get a net gain The maximum acceptable offer deepens on the reservation option ( Loss of profit– Net social Gain (gain for fisherman minus loss for plantation)). Limit for Bargaining: Impediment to collective action, Missing information, Difficult Enforcement, Limited founds Solution 2: In case Coasean Bargain does not work government has to interview trough regulation – taxation – enforcing compensation. In the first case government could cap a socially optimal amount. In the second it can apply a Pigouvian tax or Subsidy on firms that generate negative/positive external effects, in order to connect an inefficient market outcome. In this case tax is = MSC – MPC so that after the tax application plantation owners will chose their output so that MPC is equal to the after tax. In the opposite case ) MSB is major then MPB we have Pigouvian subsidy. In the last case (enforcing compensation) the government could required to a party to pay a compensation for the costs imposed on the other party it will be the difference between MSC and MPC. (Limits: Missing information, MSC are difficult to measure, government may found the more powerful group). Negative externalities cause market failure due to: incomplete contracts that do not specify every aspect of the exchange that affects the interests of all affected parties, information not verifiable or asymmetric* (not known by the decision maker), impossibility to know all the social benefits-costs included in the decision making process. Positive Externality??? Public Good can be Non rival- Excludable (public goods that are scarce), Non rival-Non excludable (impossible to exclude anyone from having access such as national defence, noise), Rival-Excludable (private goods as food), Rival-Non excludable (fish stock in a lake or a common grazing land). Markets typically allocate private goods, for the other 3 usually fail. For non excludable goods it is important to set a price. Missing Markets:*Asymmetric information have hidden attributes that can cause adverse selection (marked of used cars is a missing market, a market that could exist but only if all the info are symmetric and verifiable. Hidden actions occurs when some actions taken by one party to an exchange can not be verified by the other party (known as Moral hazard). Limits: Repugnant markets (creating a market for certain goods violate social norms), other institutions as government or families may be more effective, market mechanism may reduce norms and social preferences, merit goods should be available to everyone independently of the ability to pay as education. So market failure can be due limited competition and external effects. UNIT 19 - ECONOMIC INEQUALITY Inequality in economic is associated with disparities in education – health – choices. Inequality depends also on the circumstances, both technology and institution influence inequality trough their effects on endowments. Endowments are the differences in what people have that affect their income (wealth). These differences explain why 2 person could be on the opposite site of the credit market, as owner and employees that are in different class and have an asymmetric interaction (actions open to one party are not to the other). A change in technology reduce the demand of some skills and so its value. There are 3 types od inequality: Wealth – Market income (wages) - Disposable income (market income minus taxes). We know that wealth is much more unequally distributed then market income that is more unequally distributed than disposable income due to a tax system). Global Inequality: since 1980inequality fell between country and increased within country, as result the global inequality has started to decline (because of the growth of largest poor country as China or India. But people with the same level of education in different countries have different life choices. The increasing inequality within countries is associated with the changing in distribution of jobs, labour market segmentation. Group inequality are the economic differences among people who are treated as different categories, are usually based on country citizenship and gender or ethic group. Inherited inequality is based on parents and can influence wealth and growth. The extent to which the differences in parental generation are passes on the next generation is the Intergenerational transmission process. (intergenerational inequality, the intergenerational mobility is the change in the economic or social status between parents and children). Cross-sectional inequality is based on tends to be positively correlated with intergenerational inequality, society with strong culture on fairness have policies that reduce cross sectoral inequality and promote intergenerational mobility. Also effects of good or bad shocks are passed to the next generation contributing to the cross sectoral inequality. Inequality unfair depends on individual beliefs about how distributions come about. Some think that group/ categorical inequality is unfair and should be addressed but not the inequality based on hard work and taking risks. Changes in inequality: worker productivity can rise if the workforce is better educated, firma make higher profit due to an increase of the average product of labour and set higher wages at a new labour market equilibrium. Inequality falls and so with it also the level of unemployment. Labour market segmentation we have to assume that we have a primary labour market (represented by trade union with higher wages) and secondary labour market (short term contracts and low wages). Eliminating segmentation we gave a rise in average wages and a reduction in quality (2°ry workers wages rise while 1° fallen). Automation: A change in technology reduce the demand of some skills and so its value but increase the demand for others. Effects in the short run: machineries replace workers increasing unemployment and works with correct skills earn higher wages (increasing inequality). In the long run higher unemployment reduce workers reservation option lowering the wage but and increase in productivity increase the profit, which motivate expansion that create new jobs, reduce unemployment and increase wages. Institutions and policies can help this process through redistribution (tax and transfer to reduce differences in disposable income and expenditure on public services) and Pre-distribution (apply greater equality to endowments or rising the value of it of poor, reducing differences in endowments). Lower inequality has economic benefits: cooperation is harder to sustain with higher inequality, policies that enhance endowments of the poor improve productivity. UNIT 16 – TECHNOLOGICAL PROGRESS, EMPLYENT AND LIVING STANDARD IN THE LONG RUN Modelling environmental dynamics: healthy environmental dynamics and degraded environmental are both in equilibria. The disequilibrium process is the movement from one equilibrium to another. How to address climate change? It is difficult because people value economy more than environment , requires international cooperation and the future generation are not represented. UNIT 21 – INNOVATION, INFORMATION AND NETWORKED ECONOMY Innovation is important for economic growth but there could be a market failure since knowledge is a public good. Intellectual property rights promote innovation but are also barrier to knowledge diffusion. Innovation is the invention and diffusion of new products or production methods, there are 2 types: process innovation that is based on producing an existing good at lower costs, and product innovation base on producing a new good at an attractive good. Innovation can be radical or incremental and knowledge can be codified or tacit (non written down). Firms that successfully innovate earn an innovation rents which until their innovation is copied, firms must keep up with innovation or go out of business. There is a trade off between encouraging innovation and allowing knowledge diffusion. An innovation system specifies the relationship between parties involved in the innovation and diffusion (private firms, government, scientists) and specifies the factors that affect this social interactions between this groups remembering that innovation system differ across countries an evolve. To be successful an innovation system should have a government intervention that address and support motivated firms and a strong network of owners, employees, governments and source of finance. It is difficult to be successful due to: eternal effect and coordination problems, being a public good, economies of scale (firms entering a market first can take the entire market at least temporary). Economy of scale - supply side: the first copy is more costly to be produced but much more cheaper to reproduce (software, movies). Firms producing a knowledge – intensive good need to cover its first copy cost. Even with competition firms set a price major to the average and marginal cost to cover this fixed cost. A firm’s innovation decision affects the profits and investments of other firms, if innovation is complements mutually beneficial innovation may not happen; if innovation are substitutes wistful innovation may happen. Economies of scale – demand side: the benefit of users increase with the number of users but it may not select the best technology due to a first –adopter advantage (winners take all competition as VHS lost) But how can the market be founded? Public policy can create a platform, - private initiatives so individuals find resources to launch the risky project and – companies charge low prices to one group to attract the others. Once formed companies benefit from innovation rents. Government can protect ideas that are Codi fable and non excludable though patents ( publication and legal protection of ideas time limit 20 years) – Trade makers give the owner exclusive rights over a logo or name (last indefinitely) – Copyright give the author of an intellectual work the right to exclude other reproducing it (time limit). Intellectual property rights can promote or discourage innovation depending on the size of innovation vs the impediment to innovation diffusion.