Lec15-_Ch10_Ch11-I_-ECON2123-LI-fa13-stu

The higher the state of technology the higher output

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Unformatted text preview: for a given K and a given N. Y F (K, N ) The state of technology is a set of blue prints defining the range of products and the techniques available to produce them. 20 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER Returns to Scale and Returns to Factors Constant returns to scale is a property of the economy in which, if the scale of operation is doubled—that is, if the quantities of capital and labor are doubled—then output will also double. 2Y F ( 2 K ,2 N ) Or more generally, for any number x xY F ( xK , xN ) 21 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER Returns to Scale and Returns to Factors Decreasing returns to capital refers to the property that increases in capital, given labor, lead to smaller and smaller increases in output as the level of capital increases. Decreasing returns to labor refers to the property that increases in labor, given capital, lead to smaller and smaller increases in output as the level of labor increases. Even under constant returns to scale, there are decreasing returns to each factor, keeping the other factor constant. 22 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER Output per Worker and Capital per Worker Constant returns to scale implies that we can rewrite the aggregate production function as: Y N F K N , N N F K N ,1 The amount of output per worker, Y/N depends on the amount of capital per worker, K/N. As capital per worker increases, so does output per worker. 23 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER Output per Worker and Capital per Worker Figure 10 - 4 Output and Capital per Worker Increases in capital per worker lead to smaller and smaller increases in output per worker as the level of capital per worker increases. 24 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER The Sources of Growth Capital accumulation: Increases in output per worker (Y/N) can come from increases in capital per worker (K/N) movements along the production function. Or Technological progress: they can come from improvements in the state of technology t...
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This note was uploaded on 03/05/2014 for the course ECON 2123 taught by Professor Yanyu during the Fall '13 term at HKUST.

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