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Lecture 9

# Lecture 9 - ECONOMICS 100B Professor Steven Wood Lecture 9...

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ECONOMICS 100B Professor Steven Wood 02/15/11 Lecture 9 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Thursday’s lecture will go back wards” to cover the Appendix to Chapter 5. Make sure you read the correct chapter! Also, Exam 1 is next Tuesday, February 22 in class. LECTURE Today’s lecture focuses on Chapter 7 and examines Drivers of Growth (Technology, Policy, and Institutions) and the Romer Model. ICLICKER QUESTIONS/ANSWERS: 1.) Physical objects are rival in the sense that: When they are used in one activity they cannot be used in another activity. 2.) The key assumption in the Romer model that allows for sustained growth in output-per-capita is: Technology is non-rivalrous. 3.) The most important factor in limiting income- per-capita in developing countries today is: The absence of effective low-cost contract enforcement. TECHNOLOGY AND PRODUCTIVITY Recall that total factor productivity, A, is the most important source of economic growth in: 1.) The growth accounting formula: g Y = (1)g A + 0.3g K + 0.7g L because the coefficient for g A is 1, which means that a change in A translates point for point into more economic growth. 2.) The Solow Growth Model, because there is an exaggerated effect on the change in Y/L resulting from a change in A. Remember that there is a rotation upwards of the Y/L function, as well as an additional movement along the new Y/L function caused by an increase in K/L. Up to now, we have treated A as an exogenous variable. In modern, high-income economies such as Japan, the U.S., and Western Europe, A is used interchangeably with technology as a factor input that increases the efficiency of using labor and capital together in production. However, both labor and capital are physical inputs that exemplify: 1.) Rivalry: only one person can use an input at a time. For example, only one person can use a computer at any given time. 2.) Excludability: the owner of the input can prevent someone else from using it. For example, the owner of the computer doesn’ t have to share it with other people. On the other hand, technology is a set of ideas (not physical inputs) that has the properties of non- rivalry and non-excludability. Technology is a recipe for how to use physical inputs to produce output. 1.) Non-Rivalry: more than one person can use an idea at the same time.

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