Chapter 25 Flashcards
(17 cards)
Standard of living depends on
ability to produce goods and services (productivity)
Productivity
the amount of goods and services produced for each hour of a workers time
factors of production (definition)
inputs used to produce goods and services
factors of production
- physical capital
- human capital
- natural resources
- technological knowledge
Physical Capital
stock of equipment and structures (tools, office buildings)
Human Capital
knowledge and skills (includes investments in health and nutrition)
Natural Resources
provided by nature
renewable or non-renewable
Technological Knowledge
understanding the best way to produce
- common knowledge (everyone becomes aware of it)
- proprietary (only company that discovers it knows it)
What can government do to raise productivity and living standards? (6)
- encourage saving and investment
- encourage investment from abroad
- encourage education and training
- establish secure property rights and maintain political stability
- promote free trade
- promote research and development
diminishing returns
A concept in economics that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually become smaller
catch up effect
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
Forms of investment from abroad
Foreign Direct Investment and Foreign Portfolio Investment
Foreign Direct Investment
Capital investment owned and operated by a foreign entity
Foreign Portfolio Investment
investments financed with foreign money but operated by domestic residents
Property rights
to secure there property (so other people can’t steal it)
inward orientated trade policies
avoiding interaction with other countries
outward orientated trade policies
encouraging interaction with other countries
