Page 588 - Krugmans Economics for AP Text Book_Neat

fyi

Was Malthus Right?
In 1798, Thomas Malthus, an English pastor, au- tion of most people to a level at which starva- there is also a radical improvement in farming
thored the book An Essay on the Principle of tion and disease held the population in check. technology. Fortunately, since the eighteenth
Population, which introduced the principle of di- (Arguments like this led the historian Thomas century, technological progress has been so
minishing returns to an input. Malthus’s writings Carlyle to dub economics the “dismal science.”) rapid that it has alleviated much of the limits
were influential in his own time and continue to Happily, over the long term, Malthus’s pre- imposed by diminishing returns. Diminishing re-
provoke heated argument to this day. dictions have turned out to be wrong. World turns implies that the marginal product declines
Malthus argued that as a country’s popula- population has increased from about 1 billion when all other things—including technology—
tion grew but its land area remained fixed, it when Malthus wrote to more than 6.8 billion in remain the same. So the happy fact that
would become increasingly difficult to grow 2010, but in most of the world people eat bet- Malthus’s predictions were wrong does not in-
enough food. Though more intensive cultivation ter now than ever before. So was Malthus com- validate the concept of diminishing returns.
of the land could increase yields, as the mar- pletely wrong? And do his incorrect predictions Typically, however, technological progress re-
ginal product of labor declined, each successive refute the idea of diminishing returns? No, on laxes the limits imposed by diminishing returns
farmer would add less to the total than the last. both counts. only over the very long term. This was demon-
From this argument, Malthus drew a power- First, the Malthusian story is a pretty accu- strated in 2008 when bad weather, an ethanol-
ful conclusion—that misery was the normal rate description of 57 of the last 59 centuries: driven increase in the demand for corn, and a
condition of humankind. In a country with a peasants in eighteenth-century France probably brisk rise in world income led to soaring world
small population and abundant land (a descrip- did not live much better than Egyptian peasants grain prices. As farmers scrambled to plant
tion of the United States at the time), he argued, in the age of the pyramids. Yet diminishing re- more acreage, they ran up against limits in the
families would be large and the population turns does not mean that using more labor to availability of inputs like land and fertilizer.
would grow rapidly. Ultimately, the pressure of grow food on a given amount of land will lead to Hopefully, we can prove Malthus wrong again
population on the land would reduce the condi- a decline in the marginal product of labor—if before long.

MPL 10 is the marginal product of labor curve given 10 acres to cultivate (the same curve as
in Figure 54.2), and MPL 20 is the marginal product of labor curve given 20 acres. Both
curves slope downward because, in each case, the amount of land is fixed, albeit at different
levels. But MPL 20 lies everywhere above MPL 10 , reflecting the fact that the marginal prod-
uct of the same worker is higher when he or she has more of the fixed input to work with.
Figure 54.3 demonstrates a general result: the position of the total product curve
depends on the quantities of other inputs. If you change the quantities of the other in-
puts, both the total product curve and the marginal product curve of the remaining
input will shift. The importance of the “other things equal” assumption in discussing
diminishing returns is illustrated in the FYI above.

Module 54 AP Review

Solutions appear at the back of the book.
Check Your Understanding

1. Bernie’s ice-making company produces ice cubes using a 10-ton b. Construct a table showing the marginal product of the
machine and electricity (along with water, which we will ignore variable input. Does it show diminishing returns?
as an input for simplicity). The quantity of output, measured in c. Suppose a 50% increase in the size of the fixed input increases
pounds of ice, is given in the accompanying table. output by 100% for any given amount of the variable input.
a. What is the fixed input? What is the variable input? What is the fixed input now? Construct a table showing the
quantity of output and the marginal product in this case.

546 section 10 Behind the Supply Curve: Profit, Production, and Costs