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Oct 08 note - Why are Norwegians better off than Ethiopians.docx

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McMaster University
Hannah Holmes

Why are Norwegians better off than Ethiopians? (Ch 7) 08/10/2008 Productivity – the quantity of goods and services that a worker can produce for each hour of work Determinants of productivity - Physical capital (more resource to work with) - Human capital (education make people more smarter) - Natural resources - Technological knowledge Production function – shows how we combine inputs to produce output Y =Ax F (K, L, H, N) Y = output A= technology K = physical capital - The stock of equipment and structures that are used to produce goods and services - Workers are more productive if they have tools with which to work - More tools allow work to be done more quickly and more accurately L= labour H = human capital - Knowledge and skills that workers acquire through education training, and experience - Resources expended transmitting this understanding to the labour force N = natural resources - Natural resources are inputs into production that are provided by nature, such as land, rivers, and mineral deposits Technological Knowledge – the understanding of the best ways to produce goods and services - Technological knowledge refers to society’s understanding about how the world works 1 Why are Norwegians better off than Ethiopians? (Ch 7) 08/10/2008 If a production function exhibits constant returns to scale, then doubling all input leads to a doubling of output 2Y =Ax F (2K, 2L, 2H, 2N)
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