12
Advanced Macro (Fach) / VL3 (Lektion)
Anzeige
- parts of a model of production Single, closed economy one consumption good Inputs: Labor L and Capital K Production function Y Productivity Parameter A (Total factor productivity) Y = A*K^a*L^(1-a) F(K,L) is increasing in both K and L
- Constant Returns to Scale (CRS) Suppose one factory - now one is added with same capital and labor - how does output increase? Degree of homogeneity >1: increasing returns to scale Degree of homogeneity <1: decreasing returns to scale
- Output per person Y/L = F(K/L, L/L) = F(K/L, 1) per capita = per person = per worker Lowervase letters denote per capita
- Allocating resources Firms choose to maximise profits. Π = F(K,L) - rK - wL rK is rental rate of Capital (total cost of Capital) wL is rental rate for Labor (total cost of Labor) w and r as given
- Marginal Product of Labor dF/dL MPL = (1-a)*K^a*L^a = w = 2Y/3L
- Marginal Product of Capital dF/dK MPK = aK^(a-1)*L^(1-a) = r
- Diminishing returns d2F/dK2 < 0 d2F/dL2 < 0 When adding one unit of L, each unit of L is less productive than before and thus the return does not also double
- Equilibrium in the market w*L* + r*K* = Y* results in zero profit also verifies that production equals income
- Understanding TFP differences Differences in capital and labor explains 1/3 of the model TFP explains 2/3 Reasons: Human capital, Technology, Institutions
- Human capital stock of knowledge and skills that make people more productive people attend college in USA, each year of education increases future wages by 7%
- Anzeige
- Technology TFP aso determined by how widespread state-of-the-art technology is in each country richer countries use more modern efficient technologies new technologies more prevelant in richer countries
- Institutions Differences in government policies and in the rules and regulations foster human capital and create climate for economic growth Some challenges in countries with uncertain institutions no well-defined set of laws to follow established business rules not the same for everyone licensing fees and taxes may vary corruption and bribes imports may be challenging to receive Profits may be taxed away or stolen due to insufficient property rights a coup or war could change the environment overnight