ECON Chapter 25
Technological Knowledge
- A determinant of productivity - Society's understanding of the best ways to produce goods and services
Natural Resources per worker
- A determinant of productivity - The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
Why is human capital considered a PRODUCED factor of production?
-Producing human capital requires inputs in the form of teachers, libraries, and student time. Students can be viewed as workers who have the important job of producing the human capital that will be used in future production.
Human Capital
-A determinant of productivity -The knowledge and skills that workers acquire through education, training, and experience.
Physical Capital (or just capital)
-A determinant of productivity -The stock of equipment and structures that are used to produce goods and services
Why does an increase in the saving rate of a country lead to higher growth only for a while?
-Because of diminishing returns -As the higher saving rate allows more capital to be accumulated, the benefits from additional capital become smaller over time
Productivity depends on what things?
-Physical Capital -Human Capital -Natural Resources -Technological knowledge
What is the difference between technological knowledge and human capital?
-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 -Ex: Knowledge is the quality of society's textbooks, whereas human capital is the amount of time that the population has devoted to reading them.
Foreign direct investment
A capital investment that is owned and operated by a foreign entity (Ford building a car factory in Mexico)
Explain how economic prosperity depends on political prosperity
A stable government without threats to property rates will enjoy a higher standard of living
Foreign portfolio investment
An investment that is financed with foreign money but is operated by domestic residents (American buying stock in a Mexican corporation)
Name two investments in human capital
Education Expenditures that lead to a healthier population
Describe constant returns to scale in a production function
If a production function has constant returns to scale, then doubling all inputs causes the amount of output to double as well Pg. 539
Identify the variables in the production function Q=AF(L,K,H,N)
Q= The quantity of output F()= a function that shows how the inputs are combined to produce output A= The available production technology L= The quantity of labor K= The quantity of physical capital H= The quantity of human capital N= The quantity of natural resources Pg. 539
What is the instrument with which the invisible had of the marketplace brings supply and demand into balance in each of the many thousands of markets that make up the economy?
Market prices
What does it mean when it is said that physical capital is a PRODUCED factor of production?
Means that capital is an input into the production process that in the past was an output from the production process - Capital is a factor of production used to produce all kinds of goods and services, including more capital.
Are natural resources a limit to growth?
Most economists argue that technological progress often yields ways to avoid these limits.
Do economists usually advocate inward-oriented or outward-oriented policies
Outward-oriented policies
What determines standard of living?
Productivity
What is an Externality
The effect of one person's actions on the well-being of a bystander
Factors of production
The inputs used to produce goods and services
What is a good gauge of economic prosperity and what is a good gauge of economic progress?
The level of real GDP is a good gauge of economic prosperity The growth of real GDP is a good gauge of economic progress
The 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
Productivity
The quantity of goods and services produced from each unit of labor input
Inward-oriented policies
These policies attempt to increase productivity and living standards within the country by avoiding interaction with the rest of the world
For what do economists use a production function?
Used to describe the relationship between the quantity of inputs used in production and the quantity of output from production. Pg. 539
Explain the opportunity cost of investing in education
When students are in school they forgo the wages they could have earned as members of the labor force
What would a production function look like when examining the quantity of output per worker?
Y/Q=A F(1, K/L, H/L, N/L) Pg. 539
How would a production function with constant returns to scale be written? Use doubling as an example.
for any positive number x, xQ=A F(xL, xK, xH, xN) A doubling of all inputs would be represented in this equation by x=2 Pg. 539
What is the "brain drain"?
the emigration of higher educated people to rich countries
