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Econ ch 8
| Question | Answer |
|---|---|
| proximate causes of prosperity | high level factors of production such as physical capital, human capital, and technology that result in a high level of GDP per capita |
| fundamental causes of prosperity | the root reason for the differences in the proximate causes of prosperity 3 categories: geography hypothesis, culture hypothesis, institutions hypothesis |
| geography hypothesis | claims that differences in geography, climate, and ecology are ultimately responsible for the large differences around the globe. States tropical climate decreases work effort |
| culture hypothesis | claims values and cultural beliefs are ultimately responsible for the large differences in prosperity observed around the globe |
| institutions | formal and informal rules governing the organization of society, including its laws and regulations |
| institutions hypothesis | claims differences in the way societies organize themselves are ultimately responsible for the larges differences in prosperity observed around the globe |
| institution 3 important features | determined by individuals, place constrains on behavior, shape human behavior by determining incentives |
| institution hypothesis relies on reasons | diff. societies have diff. institutions, different institutions create different types of incentives for individuals and businesses, these incentives determine the degree to which societies accumulate the factors of production & adopt new technologies. |
| economic institutions | aspects of society's rules that concern economic transactions |
| inclusive economic institutions | institutions that support and encourage transactions and, as such: protect property rights and ownership, impartial justice system upholds law and order, allow and enforce private contracts, allow free entry into new lines of business and occupations |
| extractive economic institutions and effects | institutions that remove from the economy and, as such: don not protect private property, do not enforce private contracts, interfere with the workings of markers, restrict entry into new lines of business and occupations |
| political institutions | the aspects of society's rules that determine who holds political power and what types of constraints are placed on them. They shape economic institutions which in turn affects economic growth. |
| extractive economic institutions | support inefficient firms and prevent entrepreneurs with new ideas from entering the market. |
| extractive institutions 2 main impacts | weak property rights & legal enforcement stop entrepreneur from capturing the full returns they create, shifts return-to-entrepreneurship line left Barriers to entry in marketplace increase cost of entering the market, shifts opportunity cost line up |
| creative destruction | notion that predicts that economic growth destabalizes existing regimes and reduces political power |
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