ECO 201 Chapter Notes - Chapter 19: Marginal Product, Physical Capital, Human Capital

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13 Apr 2016

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Physical capital: consists of manufactured resources such as equipment, buildings and tools. Human capital: improvement in labor created by education and knowledge, and embodied in the workforce. Factor distribution of income: how the total income of the economy is divided among land, labor and capital. If the price of a good that is produced with factor changes, so will the value of marginal product of the factor. Ex: suppose to people clear off their land. Each can now produce more crops because each one has more land to work with. Effect of the technological progress on the demand for any given factor can go either way: improved technology can either increase or decrease the demand for a given factor of production. Equilibrium value of the marginal product: additional value produced by the last unit of labor employed in the labor market as a whole.

Related Questions

According to estimates presented in the textbook, which of the following factors made the smallest contribution to U.S. growth between 1928 and 1997?

A) Technology.
B) Human capital.
C) Physical capital.
D) Labor.

According to economist Hernando DeSoto, the lack of formal property rights in many poor countries limits economic growth because informal property rights:

A) lead to excessive investment in physical, social, and human capital.
B) limit the amount that businesses and households can borrow.
C) result in excessive government regulation.
D) decrease the labor force participation rate.

The theory of convergence depends on the assumption that:

A) population growth falls to replacement levels in all nations.
B) factors of production are mobile across borders.
C) technological advancement slows.
D) production functions have constant returns to scale.

The surge in foreign direct investment experienced by China and India in the early 2000s can best be explained by:

A) their higher marginal productivity of capital, which leads to lower production costs.
B) their lower marginal productivity of capital, which leads to lower production costs.
C) the limits they impose on factor mobility.
D) technological agglomeration.

The idea behind Say's Law is that people work because:

A) they like to work.
B) they want to buy things.
C) they want to accumulate wealth.
D) work gives them social status.

People's knowledge is a type of capital, called human capital.

A) True
B) False

The law of diminishing marginal productivity applies whenever:

A) output is increased.
B) all inputs are increased.
C) only one input is increased.
D) decreasing returns to scale are present.

13.

The theory of convergence argues that poor nations should, if they pursue the right policies,

A) grow at the same rate as rich nations.
B) grow faster than rich nations.
C) develop the same social-welfare structures as rich nations.
D) stop their exploitation by the rich nations.

14.

If increasing returns to scale exist, then an increase in output of exactly 3 percent is most likely to be produced by:

A) a decrease in all inputs of 3 percent.
B) an increase in all inputs of less than 3 percent.
C) an increase in all inputs of 3 percent.
D) an increase in all inputs of more than 3 percent.

15.

The production function is best represented in the following form:

A) Output = A.
B) Output = f(Labor, Capital, Land).
C) Output = A%u2022f(Labor, Capital, Land).
D) Output = [A%u2022f(Labor, Capital, Land)]^b.

16.

The effect of economic growth generally has been to make:

A) the poor poorer and the rich richer.
B) the poor richer and the rich poorer.
C) all income levels richer.
D) the rich richer but not affect the poor.

Scale economies describe what happens to output when:

A) one input changes.
B) all inputs change by the same percentage.
C) technology changes.
D) institutions change.

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE	D1	D2	D3
50	10	5	12
40	15	10	25
30	25	15	40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P	Qd(D1)	Qd(D2)	Qd(d3)
20	0	0	1
19	0	1	2
17	0	2	3
16	0	3	4
15	1	4	5
14	2	5	6
13	3	6	7
12	4	7	8
11	5	8	9
10	6	9	10

periwinklemuskrat632

Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

	A	some new products unleash a gale of destruction that drive other new products out of the market.
B		new products unleash a gale of destruction that drives old products out of the market.
C		new products are created by the destruction of capital.
D		the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

		A Qatar
B		United States
C		Japan
D		Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

	A	Developing countries; large proportion; decreases
B		Developing countries; small proportion; increases
C		High-income countries; large proportion; increases
D		High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A		government
B		households
C		banks
D		firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A		Income, production, and employment will continue to fall.
B		Income, production, and employment will begin to rise.
C		Income and production will rise, but employment will continue to fall.
D		Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A		Saving is greater than investment.
B		Investment is greater than saving.
C		Investment is equal to saving.
D		Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A		labor; real GDP; technology
B		capital; real GDP; technology
C		labor; capital; real GDP
D		capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

	A	knowledge; increasing returns to scale; firm
	B	physical; decreasing returns to scale; firm
	C	knowledge; decreasing returns to scale; economy
D		knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A		The British government was committed to upholding private property rights.
B		The British government was able to eliminate arbitrary increases in taxes.
C		The British government was able to more easily seize wealth.
D		Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A		the seventeenth century.
B		the eighteenth century.
C		the nineteenth century.
D		the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A		Economic growth is associated with higher labor productivity growth.
B		Economic growth increases GDP per capita.
C		Economic growth hurts developing countries.
D		Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A		sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B		profits fall less sharply as compared to firms that do not produce durable goods.
C		the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D		there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A		cyclical unemployment has been non-existent.
B		unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C		unemployment falls on average by 2 percentage points 12 months after a recession begins.
D		unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A		a reduction in sales taxes
B		an investment tax credit
C		a reduction in taxes on luxury yachts
D		All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

	A	the equilibrium interest rate will fall.
	B	business investment will fall.
	C	household savings will fall.
	D	None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A		labor force participation
B		the quantity of goods or services that can be produced by one hour of work
C		the working-age population
D		nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A		decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B		increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C		increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D		increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

ECO 201 Chapter Notes - Chapter 19: Marginal Product, Physical Capital, Human Capital

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