Econ oct 13 - Diminishing marginal product the extra output produced Catch up effect catch-up effect poor countries tend to grow faster than rich

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Chapter 7 Why are Norwegians better off than ethiopians? * Productivity: the quantity of goods and services that wookrs can produce for each hour of work * determinants of productivity: 1. physical 2. human capital 2. natural resources 4 technological knowledge Production function: Y= A . F ( K, L, H, N) Y= OUTPUTS A= TECHNOLOGY L= LABOUR N= NATURAL RESOURCES H= HUMAN CAPITAL If production function exhibits constant returns to scale, the double all inputs leads to a doubling of output. 2Y= A . F (2k, 2L, 2h, 2n) 100y= A . f (100K, 100L, 100H, 100N) XY= A . F ( XK, DIMINISHING MARGINAL PRODUCT * Product: output Marginal product: the extra output produced by increasing an input by 1 unit.
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Unformatted text preview: * Diminishing marginal product: the extra output produced. . Catch- up effect * catch-up effect: poor countries tend to grow faster than rich countries. Policies: What can government policy do to raise productivity and living standards? 1. Encourage saving (K)- Consume less and save more - eg. Impose a consumption tax 2. Allow foreign investment (K) Policies 3. spend on education (H) * More educated individuals = more idea for society * brain drain problem: emigration of highly educated people to rich countries. 4 Improive…. 5 free trade (A) * can ba asubtiute for technology 66. Resarch and development- R & D ( K,A) *grants *patent system...
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This note was uploaded on 01/27/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Winter '08 term at McMaster University.

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Econ oct 13 - Diminishing marginal product the extra output produced Catch up effect catch-up effect poor countries tend to grow faster than rich

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