Econ Text III

Econ Text III - Chapter 7- Production and Growth...

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Chapter 7- Production and Growth Productivity: Its Role and Determinants Explaining the large variation in living standards around the world is due to productivity - To explain why incomes are more in one country than another is harder to explain Why Productivity is So Important Productivity- the quantity of goods and services produced each unit of labor input - Productivity’s key role is determining living standards as true for nations as it is for stranded sailors o An economy’s GDP measures two things at once: the total income earned by everyone in the economy and the total expenditure on the economy’s output of goods and services The reason GDP can measure these two things simultaneously is that, for the economy as a whole, they must be equal An economy’s income is the economy’s output A country is richer b/c of its production - Ex: Americans live better than Nigerians because American workers are more productive than Nigerian workers How Productivity is Determined Physical Capital per Worker Workers are more productive if they have tools with which to work. Physical capital- the stock of equipment and structures that are used to produce goods and services - Ex: woodworkers make future, they use saws, lathes, and drill presses… more tools allow the woodworkers to produce their output more quickly and more accurately The inputs used to produce goods and services – labor capital, and so on – are called the factors of production - An important feature of capital is that it is a produced factor of production o Capital is an input into the production process that in the past was an output from the production process Capital is factor of production used to produce all kinds of goods and services, including more capital Human Capital per Worker Human Capital- the knowledge and skills that workers acquire through education, training, and experience Natural Resources per Worker Natural Resources- the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits Natural Resources take tow forms: renewable and nonrenewable - A forest (renewable) – when one tree is cut down, a seedling can be planted in its place to be harvested in the future - Oil (nonrenewable) – produced by nature over many thousands of years, there is only a limited supply. Once the supply of oil is depleted, it is impossible to create more Technological Knowledge Technological knowledge- society’s understanding of the best ways to produce goods and services - Some technology is common knowledge—after one person uses it, everyone becomes aware of it - Other technology is proprietary—it is known only but the company that discovers it (ex: Coke’s secret recipe) - Other technology is preparatory for a short time
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o ex: when a pharmaceutical company discovers a new drug, the patent system gives that a company a temporary right to be its exclusive manufacturer. When the patent expires, however, other
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This note was uploaded on 04/19/2008 for the course ECON 2020 taught by Professor Kaplan,jul during the Spring '08 term at Colorado.

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Econ Text III - Chapter 7- Production and Growth...

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