Question

Classical economists (The Malthusian Population Trap model) thought that fertility would rise with increases in household income, up to some maximal number of births per woman over the reproductive cycle, at which point fertility would stabilize.

(a). Is the global evidence on fertility behavior consistent with the classical model?

(b). How does the modern neoclassical theory of fertility (the microeconomic theory of fertility) differ from the classical theory, in predicting how fertility responds to household income? Briefly explain the key predictions of the neoclassical approach and how they are obtained.

Answer 1

(a) The global evidence on fertility behavior is not consistent with the classical model. Malthus’s pessimistic conclusions have not been borne out by the history of Western European countries. Gloomy forecast made by Malthus, about the economic conditions of future generations of mankind, has been falsified in the Western world. Population has not increased as rapidly as predicted by Malthus, on the other hand, production has increased tremendous­ly because of the rapid advances in technology. As a result, living standards of the people, have risen instead of falling as was predicted by Malthus.Malthus asserted that food production would not keep pace with population growth owing to the operation of the law of diminishing returns in agriculture. But by making rapid advances in technology and accumulating capital in larger quantity, advanced countries have been able to postpone the stage of diminishing returns. By making use of fertilizers, pesticide better seeds, tractors and other agricultural machinery, they have been able to increase their production greatly.In fact, in most of the advanced countries the rate of increase of food production has been much greater than the rate of population growth. Even in a developing country like India now, thanks to the Green Revolution, the increase in food production is greater than the increase in population. Thus, inventions and improvements in the methods of production have belied the gloomy forecast of Malthus by holding the law of diminishing returns in check almost indefinitely. So, we can conclude that the forecast of Malthusian population trap is irrelevant in many areas of modern day global situation.

We can describe by the help of following diagram taht how technological change and social progress allows nation to avoid the population trap:

(b) The conventional theory of consumer behavior assumes that an individual with a given set of tastes or preferences for a range of goods (a "utility function") tries to maximize the satisfaction derived from consuming these goods subject to his or her own income constraint and the relative prices of all goods. In the application of this theory to fertility analysis, children are considered as a special kind of consumption (and in developing countries, particularly low-income countries, investment) good so that fertility becomes a rational economic response to the consumer’s (family’s) demand for children relative to other goods.Mathematically, the relationships can be expressed as follows: Cd = f(Y, Pc, Px , tx ) where Cd the demand for surviving children, is a function of the given level of household income (Y), the "net" price of children (the difference between anticipated costs, mostly the opportunity cost of a mother’s time, and benefits, potential child income and old-age support, Pc), the prices of all other goods (Px ), and the tastes for goods relative to children (tx ). Under standard neoclassical conditions, we would expect the following key prediction:

1. The higher the household income, the greater the demand for children (?C_d /?Y > 0).
2. The higher the net price of children, the lower the quantity demanded (?C_d /?P_c < 0).
3. 3 The higher the prices of all other goods relative to children, the greater the quantity of children demanded (?C_d /?P_x > 0).
4. The greater the strength of tastes for goods relative to children, the fewer children demanded (?C_d /?t_x < 0).

The next figure provides a simplified diagrammatic presentation of the microeconomic theory of fertility:

The number of desired (surviving) children, C_d , is measured along the horizontal axis, and the total quantity of goods consumed by the parents, G_p, is measured on the vertical axis.Household desires for children are expressed in terms of an indifference map representing the subjective degree of satisfaction derived by the parents for all possible combinations of commodities and children.Each individual indifference curve portrays a locus of commodity-child combinations that yield the same amount of satisfaction. Any point (or combination of goods and children) on a "higher" indifference curve represents a higher level of satisfaction than any point on a lower indifference curve.The household’s ability to "purchase" alternative combinations of goods and children is shown by the budget constraint line, ab. Thus all combinations on or below line ab are financially attainable by the household on the basis of its perceived income prospects and the relative prices of children and goods, as represented by the slope of the ab budget constraint. The steeper the slope of the budget line, the higher the price of children relative to goods.The household chooses from among all attainable combinations the one combination of goods and children that maximizes family satisfaction on the basis of its subjectively determined preferences. This optimal combination is represented by point f, the tangency point between the budget constraint, ab, and indifference curve I₂. Therefore, C₃ children and G₂ goods will be demanded.A rise in family income, represented in the figure by the parallel outward shift of the budget line from ab to a'b' , enables the household to attain a higher level of satisfaction (point h on curve I₄) by consuming more of both commodities and children. Note that as income rises, parents may spend more on each child, preferring a smaller number of children, each of higher "quality", for example, healthier and better educated. Similarly, an increase in the price (opportunity cost) of children relative to other goods will cause households to substitute commodities for children. Other factors (namely, income and tastes) being constant, a rise in the relative price of children causes the household utility-maximizing consumption combination to occur on a lower indifference curve, as shown by the movement of the equilibrium point from f to e when the budget line rotates around point a to ab".finally, that if there is a simultaneous increase in household income and net child price as a result of, say, expanding female employment opportunities and a rise in wages coupled with a tax on children beyond a certain number per family, there will be both an outward shift and downward rotation of the budget constraint line to, say, dashed line c_d. The result is a new utility-maximizing combination that includes fewer children per family (point g compared with point f).