ECON 002 Lecture Notes - Lecture 8: Production Function, Diminishing Returns, Human Capital
Document Summary
Econ-002: macro economics lecture 8 productivity and production function. Given the crs production function: y/l = a * (k/l, h/l, n/l: hint, here we treat 1/l = . H/l average human capital per worker. N/l average amount of natural resources per worker. We must have diminishing returns to a particular input. If increasing all inputs together increase y by the same amount, then if we increase one factor of input, y will not increase by the same amount. K/l is low, it is really reactive (workers in china respond to subsidy and tax policy stronger than those of u. s. ) Stimulating a: political and economic stability (constitution, effective courts, less corruption, strengthen of property rights); trading with foreign countries (outward-oriented policies generally have better outcome than inward- oriented ones: portfolio foreign investment vs. direct foreign investment. Direct: i. e. foreign company start new business in the nation.