Chapter 7 - Production And Growth Flashcards
(9 cards)
What is productivity
Quantity of goods/services produced from each hour of a worker’s time
Why is productivity important?
It’s a key determinant of living standards, growth in productivity means growth in living standards
4 determinants of productivity
- Physical capital per worker - equipment/structures used to produce g/s
- Human capital per worker - knowledge and skills workers get/have
- Natural resources per worker - inputs for g/s that are produced by nature - we have no control over
- Technological knowledge - society’s understanding of the best ways to produce g/s
How to increase productivity from a policy perspective
Savings and investment, catch-up effect, education, health and nutrition, property rights (biggest one), free trade, research
What’s the catch-up effect
For developing countries, little capital goes a long way, but when countries are developed, it takes a lot of capital to start something or make a difference; starts to plateau. Countries that start off poor tend to grow more rapidly than countries that start off rich
What is diminishing returns
The benefit from an extra unit of an input declines as the quantity of the input increases
Two types of investment by foreigners
- Foreign direct investment - a capital investment that is owned and operated by a foreign entity
- Foreign portfolio investment - investment that is financed with foreign money, but operated by domestic residents
What are externalities, and an example of a positive and negative externality
Externalities: the effect of one person’s actions on the well-being of a bystander
P - someone getting a good education, will have a positive impact on other (becoming a doctor and helping them)
N - brain drain - immigration of many of the most highly educators workers to rich countries, bc they can have higher standard of living
Why does population growth impact production
A large population means a larger workforce and more consumers
