Class Notes (1,100,000)
CA (630,000)
Ryerson (30,000)
ECN (1,000)
ECN 204 (300)

Chapter 7.docx

Course Code
ECN 204
Eric Kam

This preview shows half of the first page. to view the full 3 pages of the document.
Chapter 7: Production and Growth
- Average quantity of g&s produced from each hour of a worker’s time
- Y = real GDP = quantity of output produced
- L = quantity of labour
- Y/L = productivity (output per worker) what productivity is worth in real terms
Why productivity is Important
- When nations workers are productive, real GDP is large and incomes are high
- When productivity grows rapidly, so do living standards
Physical Capital Per Worker
- Stock of equipment and structures used to produce g&s is called physical capital, denoted K
- K/L = capital per worker
- Productivity is higher when average worker has more capital (machines, equipment)
- An increase in K/L causes an increase in Y/L
Human Capital Per Worker
- Knowledge and skills workers acquire through education, training and experience (H)
- H/L = average workers human capital
- Productivity is higher when the average worker has more human capital (education, skills)
- Increase in H/L cause and increase in Y/L
Natural Resources Per Worker (N)
- Inputs into production that nature provides (land, mineral deposits)
- More N allows country to produce more Y, and increase in N/L causes and increase in Y/L
- Some countries are rich because they have abundant resources, but countries need not have
much N to be rich
Technological Knowledge
- Society’s understanding of the best ways to produce g&s
- Any advance in knowledge that boosts productivity
The Production Function
- A graph or equation showing the relation between outputs and inputs:
o Y = A F(L, K, H, N)
o F() a function that shows how inputs are combined to produce output
o “A” – the level of technology
- “A” multiplies the function F(), so improvements in technology (increases in “A”) allow more
output (Y) to be produced from any given combination of inputs
- Property of constant returns to scale: changing all inputs by the same percentage causes output
to change by that percentage, eg
o 3Y = A F(3L, 3K, 3H, 3 N)
You're Reading a Preview

Unlock to view full version