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The mathematical reason, is that this happens in order for the model to have a steady-state in terms of growth rates: variables like Consumption, Capital, Income, grow at the steady-state, but grow at the same rate, so their ratios remain constant (and it is in this sense that this situation represents a "steady"-state). If they were to grow at different ...


9

at great expense to the restaurants that actually prepare the food Your premise seems to be that the restaurants are somehow losing out. The key though is that (if done right) all three parties (the app company, the restaurant, and the consumer) should benefit. The reason is that through economies of scale (delivering for multiple restaurants) and perhaps ...


7

In addition to @KennyLJ 's answer, I think it's worth pointing out that your points require some pretty restrictive assumptions about the demand for food delivery. Some individuals might substitute calling and placing an order with going online, but certainly not all. Given that the app itself might encourage some people to order delivery (or take out) who ...


6

In the Cobb Douglas production function technological progress can be thought of as either labor or capital augmenting, it doesn't matter. Under Cobb Douglas: $Y_t = F(A_t, K_t, L_t) = A_t \cdot K_t^\alpha \cdot L_t^{1-\alpha}$ Which can be written as Labor augmenting: $Y_t = K_t^\alpha \cdot (A_t^{1/(1-\alpha)} \cdot L_t)^{1-\alpha} = F(K_t,\hat A_t ...


5

In my youth, pizza delivery was my way to make money, so I have some understanding of how the economics work in practice. Taking orders is expensive. It takes several minutes and can require that the order taker clean their hands before and after taking the order. Before because it's hard to read something covered in tomato sauce; after because they ...


4

My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because: factors of production are a stock, which produce services. What is the stock of AI? The stock of labour is easy to calculate. The stock of capital is more complex, but at least all capital goods (even robots) have a market price. As such, ...


4

Two very general reasons are: 1) High prices at the beginning target "early adopters" - people that have a higher "willingness to pay" for a new product just to have it first. Early adopters know that they pay more, and they 're ok with it. 2) As regards consumer reaction, it is much better to reduce prices than to increase prices. So sometimes prices are ...


4

In addition to (intertemporal) price discrimination, there's a parallel process of ramping up production. Especially with tech products, they can have bugs at the beginning, even with all the precautions during design/prototyping. So a massive launch at high production volume is more risky. (Lower production volume also implies higher unit price; see ...


4

I want to flesh out the answers from Alecos Papadopoulos and Bill Clark to make sure it's clear why a firm might want to reduce prices over time—known as intertemporal price discrimination. Suppose there are two groups of potential customers: enthusiasts (who love the product) and laymen (who aren't very interested in the product). Enthusiasts are willing ...


3

Yes, this is pretty standard stuff in economics. First, the simplest models contain it in a hidden form. Supply curves are derived from production functions, and include (marginal) cost of production. Technology innovation is then reflected in reduced production costs per unit. It can also change the indifference curves of consumers, leading to changes in ...


3

I'm an economist by training who also is a programmer and works with a lot of data scientists, so I've some insight into this area. One of my projects at the Urban Institute is trying to bridge the gap between these fields, and part of our work, supported by the Sloan Foundation, is publicly available here. To some degree the answer is yes, but there are ...


3

The only "perpetual motion machine" is life itself. No it is not. We also convert energy to heat as we go through life. We are certainly not immune to the second law of thermodynamics, we increase entropy all the time. Machines cannot run or reproduce themselves. Why not? There is already factory robots making other robots. But of course, they run on ...


3

There exists also a tendancy to treat growth models with heterogeneous agents. I think the question is not to use the right growth model but contribute to the theory by trying to change "representative agent" framework. That's why there exists so many growth models with heterogeneous agents in recent years. I don't think at all that endogenous growth ...


3

Oded Galor's interesting work on Unified Growth Theory subsumes the Solow model, the Malthusian model and endogenous growth theories in a very stylized way. This model is of course "long term" and ignores institutions. It is a OLG model where the main problem from the household side is a choice between quantity versus quality of offspring (human capital ...


3

People aren't ignoring things like raw material, energy, and land, they're abstracting them. They're saying, "We don't want to keep track of each of these separately, so we'll say that for our purposes, as an input to production, they're all really the same thing: capital." Whether that level of abstraction is appropriate for a specific problem can be ...


3

A clarification: The values $w,r$ are not independent of input combinations: you have already solved for $K/L$. 1) Unless you assume that the price of the output is equal to 1, there is a minor mistake, as output prices affect factor prices. 2) If there is a profit maximizing pair $(K,L)$, then for all $\alpha \in \mathbb{R}_+$ $(\alpha K,\alpha L)$ will ...


3

This is a subtle issue. First let's present a numerical example to see the head-scratching riddle. Assume $$\alpha =1/2 \implies Y = K^{1/2}L^{1/2}$$ and that the exogenously given input prices are $$r=1/8,\,\, w=4.$$ The f.o.c are $$\begin{cases} \frac {Y}{2K} = 1/8 \\ \\ \frac{Y}{2L} = 4 \end{cases} \implies K/4 = 8L \implies \left(L/K\right)^* = 1/32$...


2

Probably if you go to almost any country in the world, however poor, you will find considerable use of relatively cheap cutting-edge consumer technology such as smartphones and some more expensive cutting-edge technologies used in manufacturing or service industries. However, there is a big gap between 'adopting' cutting-edge technology at that level and ...


2

I' m not sure its a law, its what has happened because manufacturing productivity has moved faster. Indeed, the robot economy might well get rid of most service jobs and we'll all be making or programming service robots for each other. It's related to this paper Buera-Kaboski, Rise of the Service Economy But here are some potential explanations: Maybe ...


2

Many obstacles to converting common goods into private goods are legal or normative rather than technological. For example, the technology necessary for congestion pricing of traffic is long established and indeed in use since the 1970's in Singapore. The existence of electronic transmitters or plate readers (London) may make for finer gradations of pricing ...


2

New technology makes past technology obsolete. How many people know these days how to light a fire by rubbing wood together? How many people know the nuts and bolts of tending to the engine of a train powered by coal? Heck, how many coal-trains are still operational? So yes, we do forget our past discoveries and technologies, as they are replaced by new ...


2

This paper names some alternatives available: a linear trend (something like assuming constant exogenous growth) ICT capital stock of patents stock of knowledge (proxied by education levels or human capital) R&D energy prices (e.g. see here) This article mentions the following proxies for technological change: the NBER productivity series, the ...


2

I would say these are some proxies Number of patents Number of published scientific papers Human capital


2

From what I understand, labor augmentation is when the labor productivity is increased when coupled with an amplifier such as human capital. Looking at a sample labor augmented production function with constant returns to scale we have: $$F(L,K)=(AL)^\alpha K^{1-\alpha}$$ Where $L$ is labor, $K$ is capital, $A$ is our augmenter and $\alpha$1 is our output ...


2

Consider a Leontief production function: $$ Y = \text{min}(aL,bK) $$ Optimal capital-labour ratio is: $$ \frac{K^*}{L^*}=\frac{a}{b} $$ Labour-saving technical change is such that $a$ increases. The optimal capital-labour ratio increases, this is, firms use less labour per unit of capital. This is also called Capital-augmenting technical change (see ...


2

A problem with using energy service prices is that they might reflect competition conditions (e.g. monopoly/oligopoly, or the big six in the UK) rather than the true cost of energy to firms. A problem with using energy prices is that they might reflect demand and supply issues. For example, no one would say that the drop in oil prices from 140 to 50 was ...


2

Given the production function \begin{eqnarray*} F(L) = 10 \sqrt{L} - 2L \end{eqnarray*} marginal product is \begin{eqnarray*} F'(L) = \frac{5}{ \sqrt{L}} - 2 \end{eqnarray*} Since there is no cost for the family for using its own labor and it cannot hire from outside, family will maximize its production subject to the constraint that it has 4 units of ...


2

Institutions like banks for many years now keep back-up archives of their data in physical locations owned and operated by other legal entities. This is a standard case of outsourcing to specialists a requirement of a business process that is not a directly value-added activity. So the "sole custodian of one's own data" has been proven in the market not to ...


2

Would you rather work with a tractor or shovel? Would you rather use one hand to work or two?... Mathemathically the formula is: $$EL = \mathrm{GDP}_r$$ That is, efficiency ($/h) times hours worked per year equals the real GDP. Same is true for your personal life and personal income. Now, if efficiency decreases, you must either work more or live with ...


2

I guess you are referring to a situation in which abundand supply of high-skilled workers decrease productivity such that individual $w_h < w_l$ Considering Equation (5) in Acemoglu & Autor, $H$ and $L$ capture supply of both groups of workers. If $\frac{H}{L}$ becomes sufficiently high, I don't see why the relation between both wages should not ...


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