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(2) Given two counties that are identical in every way except for the fact that country...

(2)

Given two counties that are identical in every way except for the fact that country A has more capital than country B, why do we expect country A to have greater output per worker relative to country B? Use an appropriate graph of a production function to illustrate your point. Be sure your graph is clear and well-labeled.

(3) Referring to the above question, why would you expect country B to grow faster relative to country A?

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Answer #1

THE ABOVE IMAGE SHOWS :

ACCORDING TO THE QUESTION BOTH COUNTRY A AND COUNTRY B ARE IDENTICAL IN EVERY WAY , THEREFORE, MEANING THAT THEY HAVE SAME SAVINGS FUNCTION. THE QUESTION IS SOLVED USING SOLOW MODEL. THEN ACCORDING TO THIS QUESTION BOTH THE COUNTRIES HAVE THE SAME PRODUCTION FUNCTION. AS COUNTRY "A" HAS HIGHER CAPITAL THAN COUNTRY "B" , THIS MEANS THAT COUNTRY "A" HAS HIGHER CAPITAL PER WORKER (POINT "A" IN THE DIAGRAM) THAN COUNTRY "B" (POINT "B" IN THE DIAGRAM) AS BOTH ARE SAME IN THE NUMBER OF WORKERS.. THIS MEANS THAT WITH A GIVEN (SAME) PRODUCTION FUNCTION COUNTRY "A" HAS HIGHER OUTPUT PER WORKER (POINT "Y2" IN THE DIAGRAM) THAN COUNTRY "B" (POINT "Y1" IN THE DIAGRAM).

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