ECON 314 Lecture Notes - Lecture 14: Diminishing Returns, Production Function, Net Present Value
24 Jun 2019
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Document Summary
Midterm will cover chapters 10-12 in the textbook. The need to explain income differences across countries. The need to explain the significant economic growth observed. It relies on externalities from investment on capital as the source of growth. Y = ak -> growth = technology x capital. Growth emanates from the firm or industry level. Each firm/industry produces with a constant returns to scale. Economy-wide capital stock positively affects production at the industry level. The production function for an industry is given by: The assumption that industries are symmetric is problematic, esp. in developing countries. The model neglects the importance of institutional structures and the existence of imperfect good and capital markets. The broader motive for development planning is to improve overall wellbeing. This has to be achieved on multiple levels of planning. At the state level targeting economic growth and pother macroeconomic variables.
