High School

We appreciate your visit to Consider two economies with diminishing returns to capital The economies are identical except that one has a higher capital per worker than the other Suppose. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!

Consider two economies with diminishing returns to capital. The economies are identical except that one has a higher capital per worker than the other. Suppose that the saving rates in both countries increase. What will be the effect on the output per worker in the two countries?

1) Output per worker will increase in the country with higher initial capital per worker.
2) Output per worker will increase in the country with lower initial capital per worker.
3) Output per worker will remain the same in both countries.
4) Cannot be determined without additional information.

Answer :

Final answer:

If the saving rates in both economies increase, the effect on the output per worker will be different. In the country with higher initial capital per worker, the output per worker will increase. In the country with lower initial capital per worker, the output per worker will also increase, but the impact will be greater.

Explanation:

According to the law of diminishing returns, as an economy increases its human and physical capital, the marginal gains to economic growth will diminish.

Therefore, if the saving rates in both economies increase, the effect on the output per worker will be different.

If the country with higher initial capital per worker increases its saving rate, the output per worker will increase.

This is because the economy already has a higher capital per worker, so the additional savings will result in a greater increase in output.


On the other hand, if the country with lower initial capital per worker increases its saving rate, the output per worker will also increase. Since this economy has a lower capital per worker, the additional savings will have a larger impact on output.


Therefore, the correct answer is 1) Output per worker will increase in the country with higher initial capital per worker.

Thanks for taking the time to read Consider two economies with diminishing returns to capital The economies are identical except that one has a higher capital per worker than the other Suppose. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!

Rewritten by : Barada