ECON 222 Production and Growth TEST 2 BOOK

Natural Resources per Worker: What difference do they make on a country?

It can make a difference ( it helped US, Kuwait and Saudi Arabia(oil) ) but it is not necessary for an economy to be highly productive in producing goods and services. Japan - imports it's NR and is rich due to International trade.

When an economy has a low level of capital what happens when they add an extra unit of capital? What about a high economy? Why?

Low economy will see large increase to output. High economy will only see slight increase in output - because of diminishing returns

Natural Resources per Worker: What is renewable and nonrenewable

* A forest is an example of a renewable resource (you can regrow) * Oil is an example of a nonrenewable resource (made over millions of years- cant regrow/make) .

Technological Knowledge: common knowledge

* After one person uses it - everyone becomes aware of it. **For example, once Henry Ford successfully introduced assembly-line production, other carmakers quickly followed suit

How Productivity Is Determined: Physical Capital per Worker (AKA Capitol)

* First determinant of productivity * The stock of equipment and structures used to produce goods and services * More tools allows workers to produce their output more quickly and more accurately * important feature of capital is that it is a produced factor of production

The Production Function: constant returns to scale

* If a production function has constant returns to scale, then doubling all inputs causes the amount of output to double as well ** written as: xY = AF (xL, xK, xH, xN ) Mathematically, we write that a production function has constant returns to scale if, for any positive number x The right side shows the inputs doubling, and the left side shows output doubling

Differences between technological knowledge and human capital

* They are closely related * Technological knowledge refers to society's understanding about how the world works * Human capital refers to the resources expended transmitting this understanding to the labor force

How Productivity Is Determined: Technological Knowledge

* fourth determinant of productivity * understanding of the best ways to produce goods and services * technological changes free up labor, which could then be used to produce other goods and services * Two types: common knowledge, proprietary * refers to society's understanding about how the world works

Human Capital per Worker: How is it similar to physical capital?

* human capital raises a nation's ability to produce goods and services * human capital is a produced factor of production. Example: Producing human capital requires inputs in the form of teachers, libraries, and student time.

Technological Knowledge: proprietary

* known only by the company that discovers it. **Example: Only the Coca-Cola Company, knows the secret recipe for making its famous soft drink. *** Exception: When a pharmaceutical company discovers a new drug, the patent system gives that company a temporary right to be its exclusive manufacturer. When the patent expires, other companies are allowed to make the drug

How Productivity Is Determined: Human Capital per Worker

* second determinant of productivity * knowledge and skills that workers acquire through ALL education, training, and experience throughout life * less tangible (can't place hands on it ) * human capital is similar to physical capital

How Productivity Is Determined: Natural Resources per Work

* third determinant of productivity * inputs into production that are provided by nature, such as land, rivers, and mineral deposits * has 2 forms: renewable and nonrenewable

Real GDP per person in US has grown?

2% and doubles every 35 years

Physical Capital per Worker (AKA Capitol) : produced factor of production

Capital is an input into the production process that in the past was an output from the production process. Example: The woodworker uses a lathe to make the leg of a table. Earlier, the lathe itself was the output of a firm that manufactures lathes. The lathe manufacturer in turn used other equipment to make its product. Thus, capital is a factor of production used to produce all kinds of goods and services, including more capital

The Production Function: Definition

Describes the relationship between the quantity of inputs used in production and the quantity of output from production * Technological relation between quantities of physical inputs and quantities of output of goods. * Y = AF (L, K, H, N )

Foreign Direct Investment

Investment made by a foreign company in the economy of another country.

Technological Knowledge

Society's understanding of the best ways to produce goods and services

How Productivity Is Determined summarized

Technological knowledge is the quality of society's textbooks, whereas human capital is the amount of time that the population has spent reading them. Workers' productivity depends on both.

Natural Resources

The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

Human Capital

The knowledge and skills that workers acquire through education, training, and experience

Productivity

The quantity of goods and services produced from each unit of labor input

Physical Capital

The stock of equipment and structures that are used to produce goods and services

Gross National Product

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

Illustrating the Production Function

This figure shows how the amount of capital per worker influences the amount of output per worker. Other determinants of output, including human capital, natural resources, and technology, are held constant. The curve becomes flatter as the amount of capital increases because of diminishing returns to capital.

Why are some economies so much better at producing goods and services than others?

a)Some countries happen to produce (or have an absolute or comparative advantage) types of goods that are in demand on the global market.b)Some countries have multiple exports they can sell (the exports are 'diversified') so if one export is not in demand, they can sell another.c)Some countries get foreign investments and can send this money to key parts of their economy (for example, education, research and development, technology).

foreign portfolio investment

an investment that is financed with foreign money but operated by domestic residents

Can students be viewed as workers? why?/why not?

yes, because they are producing the human capital that will be used in future production.

Increases in the amount of human capital in the economy tend to ____real incomes because they increase the _____ of labor. Answer

decrease; productivity

The Production Function: Y

denotes the quantity of output

The Production Function: F( )

is a function that shows how the inputs are combined to produce output

The Production Function: A

is a variable that reflects the available production technology. As technology improves, A rises, so the economy produces more output from any given combination of inputs.

What does a country's standard of living depend on?

its ability to produce goods and services. Example: Americans live better than Nigerians because American workers are more productive than Nigerian workers

Physical Capital per Worker (AKA Capitol): Remember: factors of production

land, labor, capital

Most economists are ____ that natural resources will eventually limit economic growth. As evidence, they note that the prices of most natural resources, adjusted for overall inflation, have tended to ____ over time.

not concerned, fall

How Productivity Is Determined

physical capital per worker, human capital per worker, natural resources per worker, technological knowledge

The Production Function: H

quantity of human capital

Diminishing marginal product of capital

tendency for the marginal product of capital to fall as capital per worker rises

Externality

the impact of one person's actions on the well-being of a bystander

Catch-up Effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

Diminishing Returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

The Production Function: L

the quantity of labor

The Production Function: N

the quantity of natural resources

The Production Function: K

the quantity of physical capital

In the long run

the time period in which all inputs can be varied