ECON 1B03 Lecture Notes - Lecture 7: Free Trade, Marginal Product, Human Capital

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Productivity : the quantity of goods and services that a worker can produce for each hour of work. Q that a worker produces for each hour of work. 3. technological knowledge-how to combine inputs to produce outputs. Production function: shows how we combine inputs to produce outputs. Output(gdp)=technology (physical capital, labour, human capital, natural resources) If a production functions exhibits constant returns to scale. then doubling all inputs leads to a doubling of output. Y/l=a x f (k/l, 1, h/l, n/l) xy=a x f(xk, xl, xh, xn) Diminishing marginal product (extra input for how many extra output) Marginal product: the extra output produced by increasing an input by 1 unit. Diminishing marginal product: the extra output produced by adding the 19th unit of labour is smaller than the extra output produced by adding the 18th unit of labour. Poor countries tend to grow faster than rich countries.