ECON Ch. 3

if Y=AK0.5L0.5 and A,K,L are all 100, the marginal product of capital is

50

the property of diminishing marginal product means that after a point, when additional quantities of

a factor is aded when another factor remains fixed, the marginal product of that factor diminishes

according to goldin and katz the increasing income inequality of recent decades is the result of

a steady pace of technological advance and a slowdown in educational advance

the marginal product of capital is

additional output produced when one additional unit of capital is added

the marginal product of labor is

additional output produced when one additional unit of labor is added

economic profit is zero if

all factors are paid their marginal products and there are constant returns to scale

according to neoclassical ... in an economy described by CD production function, workers should experience high rates of real wage growth hen

average labor productivity is growing rapidly

the two most important factors of production are

capital labor

if an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has what property

constant returns to scale

an increase in the supply of capital will

decrease the real rental price of capital

estimates by goldin and katz indicate that the financial returns of a year of college - between 1980 and 2005

increased

skill biased technological change - the demand for high skilled workers while the slowdown in the pace of educational advancement reduces the supply of skilled workers resulting in relatively - wages for skilled workers

increases higher

if the production function describing an economy is y=100k.25L.75, then the share of output going to labor

is 75 percent

the neoclassical theory of distribution

is a theory of how national income is divided among the factors of production

at any particular point in time, the output of an economy

is fixed because the supplies of capital and labor and the technology is fixed

with a cobb douglas production function, the share of output going to labor

is independent of the amount of labor

a competitive firm

is small relative to the market in which it trades

according to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their

marginal productivities

the marginal propensity to consume is

normally expected to be between zero and one

an economy factors of production and its production function determine the economy

output of goods and services

in the long run, what determines the level of total production of goods and services in an economy

quantity of capital, labor, and production technology

a competitive firm chooses the

quantity of labor and capital to employ

a firms economic profit is

revenue minus cost

when factor supply is fixed and quantity of the factor is graphed on the horizontal axis while factor price is graphed on the vertical axis, the factor

supply curve is vertical

disposable personal income is defined as income after

taxes

the real wage will increase if

the productivity of labor increases

in a cobb douglas production function, the marginal product of labor will increase if

the quantity of capital increases

in a cobb douglas production function the marginal product of capital will increase if

the quantity of labor increases

in the classical model what adjusts to eliminate any unemployment of labor in the economy

the real wage

according to rulers theorem...the sum of all factor payments will equal

total outpu

if bread produced by using a constant returns to scale production function, then if the amount of equipment and workers are both doubled,

twice as much bread will be produced

the real rental price of capital is the price per unit of capital measured in

units of output

according to neoclassical... in an economy described by CD production function, when average labor productivity is growing rapidly

workers will experience high rates of real wage growth

unlike the real world, the classical model with fixed outputs assumes that

all factors of production are fully utilized

if output is described by the production function Y=AK0.2-L0.8, then the production function has

constant returns to scale

in a closed economy the components of GDP are

consumption investment government purchases

the demand for output in a closed economy is the sum of

consumption investment government spending

circular flow model shows that households use income for

consumption taxes saving

the production function feature called constant returns to scale means that if we

increase capital and labor b 10 percent each, we increase output by 10 percent

consumption depends - on disposable income and investment depends - on the real interest rate

positively negatively

a competitive, profit maximizing firm hires labor until the

price of output multiplied by the marginal product of labor equals the wage

in fourteenth century europe, the bubonic plague

substantially increased real wages in europe

what determines the distribution of national income between labor and capital in a competitive profit maximizing economy with constant returns to scale

the marginal productivity of labor relative to the marginal productivity of capital

the real wage is the return to labor measured in

units of output

in the circular flow diagram, firms receive revenue from the - which is used in the -

goods market factor market

the neoclassical theory of distribution explains the allocation of

income among factors of production

since 1960, the US ratio of labor income to total income has

been about 0.7

according to neoclassical theory of distribution, if the firms are competitive and subject to constant returns to scale, total income in the economy is distributed

between labor and capital used in production, according to their marginal productivities

the price received by each factor of production for its services is determined by

demand and supply of factors

a consumption function shows the relationship between consumption and

disposable income

accounting profit is

economic profit plus the return to capital

the public policy implication of goldin and katz analysis of growing income inequality is that reversing this trend will require that more of society resources be put into

education

in the circular flow model households receive income from the - and save through the -

factor market financial market

in the long run, the level of national income in an economy is determined by its

factors of production and production function

a production function is a technological relationship between

factors of production and the quantity of output produced