Consider a small island country whose only industry is weaving. The following ta
ID: 1137393 • Letter: C
Question
Consider a small island country whose only industry is weaving. The following table shows information about the small economy in two different years Complete the table by calculating physical capital per worker as well as labor productivity Hint: Recall that productivity is defined as the amount of goods and services a worker can produce per hour. In this problem, measure productivity as the quantity of goods per hour of labor Physical Capita Labor Force Physical Capital per Worker Labor Hours Output (Garments) 23,100 49,000 Labor Productivity (Garments per hour of labor) Year 2027 2028 (Looms) 120 400 (Workers) 60 100 (Hours) 3,300 3,500 (Looms) Based on your calculations, in physical capital per worker from 2027 to 2028 is associated with in labor productivity from 2027 to 2028 Suppose you're in charge of establishing economic policy for this small island country Which of the following policies would lead to greater productivity in the weaving industry? Check all that apply Encouraging saving by allowing workers to set aside a portion of their earnings in tax-free retirement accounts Imposing a tax on looms Offering free public education to every worker in the country Subsidizing research and development into new weaving technologiesExplanation / Answer
(1)
Physical capital per worker = Physical capital / Labor force
Labor productivity = Output / Labor hours
Year Physical capital per worker Labor productivity
2026 120/60 = 2 23,100/3,300 = 7
2027 400/100 = 4 49,000/3,500 = 14
(2) Increase in physical capital per worker is associated with Increase in labor productivity.
(3) Policies that would lead to greater productivity are:
- Offering free public education to workers
- Subsidizing research and development