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Lecture 12

lecture 12 ~ chapter 7 .docx

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Hannah Holmes

Why are Norwegians better off than Ethopians? chapter 7 ~ economic growth (why do some countries grow/richer faster than others)  real per capita gdp - Liechtenstein  highest per capita gdp Productivity  Productivity: the quantity of goods and services that a worker can produce for each hour of work o Determinants of productivity 1. Physical capital (buildings, machinery equipment, anything that’s used to produce other goods and services, infrastructure [highways]) 2. Human capital (people learning things)  ex. How much time we actually spend reading the books in the library 3. Natural resources (renewable things  fish, trees crop, non- renewable  oil, minerals) 4. Technological knowledge (our knowledge of hot to combine inputs inorder to produce output)  ex. Books in a library  human capital & tech knowledge are related but aren’t the same - Possible to have a high technological knowledge but if no body in the economy spends time learning the technological knowledge, its not going to be useful - Ex. Which of the following is human capital  understanding how to use a company’s accounting software  Production function: shows how we combine inputs to produce output  F = function  Y = output = expenditure = income  A = technology  K = Physical capital  L = labour  H = human capital  N = natural resources o Two assumptions:  If a production function exhibits constant returns to scale, then doubling all inputs leads to a doubling of output (get exactly twice as much output)  multiplying all of the inputs by some factor at the same time and asking what happens to output when we do that  Production function with Increasing returns of scales, by doubling more of all of my inputs id get more than twice as much output  Production function with Decreasing returns of scale, double all of my inputs and get less than twice as much output  Assuming crts  any multiple times all of the inputs at the same time gets me exactly that multiple times the output  capital per worker  natural resources per worker  human capital per worker  if each worker can more capital, each worker will be more productive  if each worker has more resource
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