Principles of Economics- Mankiw (5th) 516

Principles of Economics- Mankiw (5th) 516 - 534 PA R T N I...

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534 PART NINE THE REAL ECONOMY IN THE LONG RUN better at catching fish, for instance, if he has more fishing poles, if he has been trained in the best fishing techniques, if his island has a plentiful fish supply, and if he invents a better fishing lure. Each of these determinants of Crusoe’s pro- ductivity—which we can call physical capital, human capital, natural resources, and technological knowledge —has a counterpart in more complex and realistic economies. Let’s consider each of these factors in turn. Physical Capital Workers are more productive if they have tools with which to work. The stock of equipment and structures that are used to produce goods and services is called physical capital, or just capital. For example, when woodworkers make furniture, they use saws, lathes, and drill presses. More tools allow work to be done more quickly and more accurately. That is, a worker with only basic hand tools can make less furniture each week than a worker with sophisticated and specialized woodworking equipment. As you may recall from Chapter 2, the inputs used to produce goods and ser-
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