ECON102 Study Guide - Midterm Guide: Bankrate

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Document Summary

Production function: a graph or equation that shows the relationship between outputs and inputs, y = af(l, k, h, n, a = level of technology, the function has the property constant returns to scale which means that by changing all the inputs by the a certain percentage will cause the output to change by that percentage, the production function has the properties increasing returns to scale and decreasing returns to scale. Diminishing returns and catch up effect: govt. can implement policies that raise saving and investment, then k will rise causing productivity and living standards to rise, but this is temporary due to diminishing returns to capital; as k rises the extra output from an additional unit of k falls, diminishing returns state that eventually when k is increased it will either, catch up effect have little or no effect on productivity ones because poor countries start off lower on the frontier.

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