Question

Consider the economies of Sporon and Gobbledigook, both of which produce gobs of goo using only tools and workers. Suppose that, during the course of 30 years, the level of physical capital per worker rises by 5 tools per worker in each economy, but the size of each labor force remains the same.

Complete the following tables by entering productivity (in terms of output per worker) for each economy in 2014 and 2024.

Sporon
Year Physical Capital Tools per worker Labor Force Workers Output Gobs of goo Productivity Gobs per worker
2014 11 30 3,000 _________
2024 15 30 3,600 _________

Gobbledigook
Year Physical Capital Tools per worker Labor Force Workers Output Gobs of goo Productivity Gobs per worker
2014 8 30 2,400 _________
2024 12 30 3,600 _________

Initially, the number of tools per worker was higher in Sporon than in Gobbledigook. From 2017 to 2037, capital per worker rises by 5 units in each country. The 5-unit change in capital per worker causes productivity in Sporon to rise by a _________ amount than productivity in Gobbledigook. This illustrates the concept of __________ , which makes it__________ for countries with low output to catch up to those with higher output.

Answer 1

Sporon

2014 productivity per worker = total output / total number of workers = 3,000 / 30 = 100 gobs of goo per worker

2024 productivity per worker = total output / total number of workers = 3,600 / 30 = 120 gobs of goo per worker

Gobbledigook

2014 productivity per worker = total output / total number of workers = 2,400 / 30 = 80 gobs of goo per worker

2024 productivity per worker = total output / total number of workers = 3,600 / 30 = 120 gobs of goo per worker

The 5-unit change in capital per worker causes productivity in Sporon to rise by a SMALLER amount than productivity in Gobbledigook. This illustrates the concept of CATCH-UP EFFECT, which makes it EASIER for countries with low output to catch up to those with higher output.