SEM 1 - LEC 3 - INTRO

Question 1

How do we denote capital and labour

Answer 1

We assume that there is a certain number of people available to produce the consumption good.
This number is denoted by L ̄ (labour).

We also assume that there is a certain number of machines to produce the consumption good.
This number is denoted by K ̄ (capital).

Question 2

what’s the production function given by

Answer 2

Question 3

what’s the profit maximisation problem equation

Answer 3

Question 4

what’s The marginal product of capital (MPK)

Answer 4

is the extra amount of output that is produced when one unit of capital is added, holding all other inputs constant.

Question 5

The marginal product of labour (MPL)

Answer 5

is the extra amount of output that is produced when one unit of labour is added, holding all other inputs constant.

Question 6

For our Cobb-Douglas production function, what is the marginal product of capital is given by

Answer 6

Equation (4) tells us that the marginal product of capital is proportional to the average amount that each unit of capital produces, Y/K, where the factor of proportionality is 1/3, the Cobb-Douglas exponent.

The marginal product of capital depends on the ratio L/K: therefore, MPK declines as K rises.

Question 7

For our Cobb-Douglas production function, what is the marginal product of labour is given by:

Answer 7

Equation (5) tells us that the marginal product of labour is proportional to the average amount that each worker produces, Y /L, where the factor of proportionality is 2/3, the Cobb-Douglas exponent.

The marginal product of labour depends on the ratio K/L: therefore, MPL declines as L rises.

Question 8

how can we summarise, the solution is to hire capital and labour until their marginal products fall to equal r and w, respectively.

Answer 8

Question 9

what are the equations for the following :

Unknown or endogenous variables: Y, K, L, r, w.
Production function: 
Rule for hiring capital:
Rule for hiring labour:
Demand = supply of capital:
Demand = supply for labour:

Parameters or exogenous variables: A ̄, K ̄, L ̄.

Answer 9

Question 10

what’s a partial equilibrium

Answer 10

In microeconomics, when supply and demand in a single market determine the price and the quantity sold in the market

Question 11

how do you solve the general equilibrium model graphically

Answer 11

Question 12

what is the equilibrium wage proportional to

Answer 12

the equilibrium wage is proportional to output per

worker:

Question 13

what is the equilibrium rental rate on capital is proportional to

Answer 13

output per unit of capital

Question 14

how can you show that the sum of payments to labour and capital is exactly equal
total production in the economy.

Answer 14

Question 15

what does per capita mean

Answer 15

per person

Question 16

what’s the output per person and capital per person

Answer 16

Question 17

what’s the formula for output per person in equilibrium

Answer 17

Question 18

If a country has a high value of A ̄, it will have a higher level of output for any given values of K and L. what is A ̄

Answer 18

We can interpret A ̄ as an efficiency or productivity parameter: it measures how productive countries are at using their factor inputs to produce output.

Thus, A ̄ is called total factor productivity or TFP.

Question 19

We can think at A ̄ as a measure of how big the gap is between our model and the data: what’s it sometimes referred to as ?

Answer 19

A ̄ is sometimes also referred to as “the residual”

Question 20

what’s the equation for explaining tfp and capital per person

Answer 20

Question 21

what’s human capital

Answer 21

Human capital is the stock of skills that individuals accumulate to make them more productive.
e.g. education. - People acquiring knowledge and skills will, among other things equal, be more productive members of the society.

Question 22

how to work out table thing

Answer 22