Economic growth depends on more than simply having a larger economy. To understand how productive capacity and average living standards improve, economists examine physical capital, human capital, technology, and output per person. This lesson introduces these components and explains how increasing capital per worker can raise productivity.
An economy uses inputs to produce goods and services. Three important components are physical capital, human capital, and technology.
All flashcards
What is physical capital?
The plant, equipment, tools, buildings, and infrastructure used to produce goods and services.
What is human capital?
The knowledge and skills that make workers more productive, developed through factors such as education and training.
What does technology include in economics?
Inventions, new products, improved production methods, and better ways to organize work so that inputs produce more or higher-quality output.
How is GDP per capita calculated?
GDP divided by the population; it represents average output per person.
What is capital deepening?
An increase in the amount of physical or human capital available per person or worker.
Quiz questions
In growth accounting, how is the portion of output growth not explained by measured inputs conventionally treated?Answer: It is attributed to technological progress.
Why is the growth-accounting residual not a direct measurement of technology?Answer: Its size depends on input measures and the period and country studied.
How do property rights support investment and innovation?Answer: They give people confidence they can benefit from assets and inventions.
Why might government policies support economic growth in a market-oriented economy?Answer: They can address market failures and support investments with broad social benefits.
In low-income countries, what wage pattern is typically associated with each additional year of education?Answer: Average wages rise by about 10–20%.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.