Chapter 17 Flashcards
Productivity
The quantity of goods and services produced from each unit of labor input.
GDP measures two things at once
- The total income earned by everyone in the economy
- The total expenditure on the economy’s output of goods and services
They must be equal. An economy’s income is the economy’s output.
Determinants of productivity
- Physical capital
- Human capital
- Natural resources
- Technological knowledge
Physical capital (capital)
The stock of equipment and structures used to produce goods and services
The Factors of Production
The inputs used to produce goods and services (labor, capital, etc.)
Human Capital
The knowledge and skills that workers acquire through education, training, and experience
Natural Resources
Inputs into production that are provided by nature (land, rivers, mineral deposits)
Technological Knowledge
The understanding of the best ways to produce goods and services
Production Function
Used to describe the relationship between the quantity of inputs used in production and the quantity of output from production
Production Function Formula
Y= AF (L, K, H, N)
Y= AF (L, K, H, N)
Y= quantity of output L= quantity of labor K= quantity of physical capital H= quantity of capital N= quantity of natural resources
A=reflects the available production technology
F=function that shows how the inputs are combined to produce output
As technology improves, A rises, so the economy produces more output from any given combo of inputs
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.
xY=AF (xL, xK, xH, xN)
x=1/L
Y/L=AF(1, K/L, H/L, N/L)
Diminishing returns
As the stock of capital rises, the extra output produced from an additional unit of capital falls
The catch-up effect
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich (poor countries tend to grow at a faster rate than rich countries
