ECON 4140 Study Guide - Midterm Guide: Economic Surplus, Chemotherapy, Arbitrage
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Exam 1 Review
1. (2 points) Explain the difference between economic growth and economic
development. Deﬁne extensive growth. (2 points) Deﬁne intensive growth.
(6 points, 2 points each) List three other indicators of economic development
other than National Income measures (GDP, GNP, etc.) that are of interest to
economists and what can be inferred from each of these indicators.
Economic growth is the sustained increase in the output of goods and
services of a society.
Economic development is the economic growth accompanied by changes in
the technical and institutional arrangements by which output is produced.
Extensive growth is increases in outputs due to increases in inputs (labor
force grows; land stock increases).
Intensive growth: increase in outputs per unit of inputs, in case of labor we
call that productivity. Usually associated w/ technology.
1. Average annual rate of inﬂation, which is an indicator of stability of
the economy and measure of conﬁdence in the govt. Countries with
high inﬂation often have dictator printing money for their own
purpose or at war.
2. Life expectancy at birth, which is an unambiguous measure of well
being. Longer lifespans mean better medical care, better nutrition,
less stress, better environment. Weather countries have longer life
and better health.
3. Adult literacy, both female and total, which is a good measure of
human capital. A literate workforce can learn more efﬁciently.
Literacy is also negatively correlated w/ child labor. Female literacy,
especially when there’s a big difference across genders, usually
indicate that the status of women is very low. A society that
educates boys but not girls, likely does not treat woman well.
2. (6 points, 2 points each) List and brieﬂy explain 3 weaknesses of per capita
GNP (or GDP) as a measure of economic well-being. (4 points) Although this
measure has the ﬂaws you just listed (and others) it is the most often used
statistic when considering standard of living differences across countries.
1. Does not capture all economically important activities:
•Black market/informal (barter) market- much larger in less
•Agriculture production for own consumption.
•Housework—economies with a more traditional society( stay at
home mom) will have lower GDP as less food and cleaning
services purchased, but these services are still provided, just
outside of the market.
2. Dollar value of a good does not always equal “social” value. Issue
during industrialization. People moved from farms to cities, there
was more economic activity, but also a decline in health; less fresh
food, and less fresh air. More population and disease. War will
increase GDP as government spending increases, but may make
people worse off.
3. Does not account for differences in “cost of living” across time and
space. Some goods were not available in history (antibiotics,
chemotherapy, statin drugs). Differences in housing costs and taxes
make cross space comparisons difﬁcult as well( Columbus v.s San
*Despite these caveats, GDP is still the most often used measure of
countries’ welfare because:
1. It is available for most countries for many years (At least 50),
back to 1840 for the US. Even further back for Britain and some other
2. Plus, its is highly predictability correlated with any other
3. Brieﬂy explain the following 3 types of colony organization and provide an
example of each one: (3 points) joint-stock companies, (2 points) royal
colonies, and (2 points) proprietary colonies.
1. Joint-Stock Companies are in which subscribers bought shares in
the enterprise in return for a share in the proﬁts, if any resulted.
a. The Jamestown colony–-the Virginia Company.
2. Royal Colonies were ﬁnanced directly by the crown and governed
directly from London or through the crown’s agent in the colony.
a. The ﬁrst royal colony was Jamestown in 1624.
3. Proprietary colonies established through grants of land to
individuals favored by the crown. The settlers in these
proprietary colonies were granted all the rights of Englishmen.
a. In 1634, Lord Baltimore was given Maryland which he set
up as a haven for Catholics.
4. (5 points) Brieﬂy describe the overall pattern of early settlement. Speciﬁcally,
explain the role of break-in-transit, the hinterlands, and external economies.
(5 points) List 5 features of free and common socage.
Early settlement systematically was constructed based on the presence
of a break-in-transport and productive hinterlands in order to support
imports and exports. Break-in-transit is a place where things are loaded
and unloaded. Hinterlands are areas surrounding towns that had access to
more local produce than others. With an increase in the exchange of
goods due to the break-in-transit and hinterlands combination, External
economies developed because services were required: docks, warehouses,
insurances agents, importer and exporter, etc.
Free and common socage (or fee simple land tenure). Features:
a. land held in perpetuity (not limited to any term of years).
b. heritability (directly heritable by heirs) – did not return to !
donor upon death
c. could be passed on by will
d. only "ﬁxed and certain" obligations – quit rent
e. right of waste -- can exploit all resources on the land
f. alienability -- could freely sell land !
1. (2 points) explain the difference between economic growth and economic development. Economic growth is the sustained increase in the output of goods and services of a society. Economic development is the economic growth accompanied by changes in the technical and institutional arrangements by which output is produced. Extensive growth is increases in outputs due to increases in inputs (labor force grows; land stock increases). Intensive growth: increase in outputs per unit of inputs, in case of labor we call that productivity. Indicators: average annual rate of in ation, which is an indicator of stability of the economy and measure of con dence in the govt. Countries with high in ation often have dictator printing money for their own purpose or at war: life expectancy at birth, which is an unambiguous measure of well being. Longer lifespans mean better medical care, better nutrition, less stress, better environment.