Chapter 12/Production and Growth
ANSWER: Income per person in 1982 was $4,915,600/233 = about $21,097. Income per person in 1999 was $9,243,800/283.5 = about
$32,606. Income per person grew by (32,606 – 21,097)/21,097 = about 54.5 percent.
Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living
mean. Make a list of things that determine labor productivity.
ANSWER: The standard of living is a measure of how well people live. Income per person is an important dimension of the standard
of living and is positively correlated with other things such as nutrition and life expectancy that make people better off.
Productivity measures how much people can produce in an hour. As productivity increases, people can produce more (and use
less to produce the same amount) and so their standard of living increases.
The factors that determine labor productivity include the amounts of physical capital (equipment and structures), human
capital (knowledge and skills), and natural resources available to workers, as well as the state of technological knowledge in
What is a production function? Write an equation for a typical production function, and explain what each of the terms
ANSWER: a production function is a mathematical representation of the relationship between the quantity of inputs used in production
and the quantity of output from production. A typical production function could be written as Y = A F(L, K, H, N), where Y
denotes the quantity of output, L the quantity of labor, K the quantity of physical capital, H the quantity of human capital, N the