ECON 313 Lecture Notes - Lecture 2: Marginal Product, Capital Intensity, Production Function

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amethystscorpion557

15 Feb 2017

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Labor and capital are critical factors in the creation of value and in the production of output in an economy. (factors of production) Inputs are not considered as factors of production since they are not part of the value created by the firm. We define the concept of value added as the value of output minus the value of inputs used in production. In the example of a tshirt company, the value added is the value of the tshirt minus the value of the inputs necessary to produce them. The productivity of each factor of production depends on the quantity of the other factor of production used. In highly developed countries, capital is usually more abundant than labor, while in poor countries labor is more abundant. Where a=scale factor that links units of labor and units of capital to dollars of output. And a = how capital and labor interact.

Related Questions

You have two countries, A and B, two factors of production, L and K, and two commodities, X and Y. A is labor-abundant, B is capital-abundant, X is labor-intensive, Y is capital intensive, and the tastes in the two countries are identical.
(a) Draw the production possibilities frontiers, the community indifference curves of the two countries in autarky and in international trade equilibrium.
(b) Explain the problems involved in using the individual indifference curves as community indifference curve and under what conditions we can use them.

jademarten75

Countries A and B have two factors of production, capital, and labor, with which they can produce two goods X and Y. Technology is the same in the two countries. X is capital intensive; A is capital abundant. Analyze the effect on the terms of trade and on the two counties' welfare (including factor payments) of the following:

1. An increase in A's capital stock

2. An increase in A's labor supply

3. An increase in B's capital stock

4. An increase in B's labor supply

olivearmadillo201

Draw the graph carefully. Please use one graph per country and show both the autarky and the free trade equilibrium on each graph.

Consider the following data on the factor endowments of two countries A and B:

	Countries
Factor Endowments	A	B
Labor force: L	100 workers	50 workers
Capital Stock: K	60 machines	10 machines

a. Which country is relatively capital abundant? Which country is relatively labor abundant? Explain (calculate the ratios).

b. Supposing that cars are capital intensive relative to shoes, which country will have a comparative advantage in the production of cars? Of shoes? Explain.

c. Graphically demonstrate the pre-trade and post-trade equilibrium between these two countries (production and consumption points). Draw a Demand Diagonal. Find and label the trade triangles for each country.

d. Which factor gains and which factor loses when trade arises between these two countries? Explain precisely.

pinkalligator798

ECON 313 Lecture Notes - Lecture 2: Marginal Product, Capital Intensity, Production Function

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