Chapter 7

stable government, property rights, entrepreneurship, functioning markets, hours of work

**all ensure efficiency in the PPC

the stock of equipment and structures used to produce goods and services

• a produced factor of production (in the past was an output from the production process, now an input into the production process)
• forego consumption to increase capital through investment or saving
• public capital (infrastructure) is decided by the government, not the price system
• could be an over- or under-investment
• existing capital is a sunk cost

the knowledge and skills that workers acquire through education, training, and experience

• good citizenship, higher wages (and more tax revenue), innovations (and consumer surplus)
• high marginal product in developing countries
• refers to the resources expended transmitting technological understanding to the labor force

education (pre-K, loans, health vaccines), job training, conditional cash tranfers, brain drain

inputs into production that are provided by nature

• not tradeable

the understanding of the best ways to produce goods and services

• can spread slowly
• public knowledge is a non-rival source as it is not used up by just one person or every person
• private knowledge incentivize innovations (ex:- patents, trade secrets, etc.)
• refers to society's understanding about how the world works

real GDP (Y) = A x f(L, K, H, N)

• if one input is increased and the others are held constant, there are eventual diminishing returns
• constant returns to scale

• poor countries have less capital and catch up quickly
• an economy can't grow forever by just increasing capital

based on the Current Populatoin Survey:

• above a certain age (country dependent)
• without work
• currently available for work
• actively seeking work

(number unemployed/ labor force) 100

** Labor Force = employed + unemployed

if a nation saves more, fewer resources are needed to make consumption goods and more resources are available to make capital goods

• capital stock increases
• productivity rises
• rapid GDP growth

in the long run, higher saving rates lead to a higher level of productivity and income, but not to higher growth in productivity and income

a capital investment that is owned and operated by a foreign entity

• good source of investment for poor countries

• the opportunity cost of using resources for physical, human and technological capitals
• undesirable side effects (ex:- pollution, income inequality)

• technology advances
• scarcity in markets
• substitution possibilities
• future growth uses different resources
• quality improvements (fewer resources used)
• safeguard envirnoment
• gets better before it gets worse (i.e. Kuznet's Curve)
• population growth
• each worker equipped with less capital, which leads to less productivity and lower per capita GDP