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Unformatted text preview: Chapter 17: Economic Growth: Theory and Policy The production function tells us how much the economy can produce, given its available resources (capital, labor, and technology). Output is shown as a function of labor in the graph above. The production function tells us how much the economy can produce, given its available resources. When this economy has 100 labor hours, it has the capacity to produce 180 units of output. The increase in labor hours is represented by a movement along the production function (from the green triangle to the red cross). When the economy uses more labor hours, this implies an increase in output (from Y = 180 with L = 100 to Y = 240 with L = 150). The increase in capital means that output will be higher for given labor inputs and technology. This is represented by an upward shift in the production function. The technology....
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This note was uploaded on 01/23/2010 for the course ECN 72570 taught by Professor Mendez during the Fall '09 term at ASU.
- Fall '09