Principles of Economics- Mankiw (5th) 515

Principles of Economics- Mankiw (5th) 515 - CHAPTER 24...

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CHAPTER 24 PRODUCTION AND GROWTH 533 puzzling. To explain why incomes are so much higher in some countries than in others, we must look at the many factors that determine a nation’s productivity. WHY PRODUCTIVITY IS SO IMPORTANT Let’s begin our study of productivity and economic growth by developing a sim- ple model based loosely on Daniel DeFoe’s famous novel Robinson Crusoe. Robin- son Crusoe, as you may recall, is a sailor stranded on a desert island. Because Crusoe lives alone, he catches his own fish, grows his own vegetables, and makes his own clothes. We can think of Crusoe’s activities—his production and con- sumption of fish, vegetables, and clothing—as being a simple economy. By exam- ining Crusoe’s economy, we can learn some lessons that also apply to more complex and realistic economies. What determines Crusoe’s standard of living? The answer is obvious. If Cru- soe is good at catching fish, growing vegetables, and making clothes, he lives well. If he is bad at doing these things, he lives poorly. Because Crusoe gets to consume
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