Consider a small island country whose only industry is printing. The following t
ID: 1213229 • Letter: C
Question
Consider a small island country whose only industry is printing. The following table presents information about this small economy in two different years.
Complete the table by calculating physical capital per worker and 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.
Based on your calculations, (an increase or Decrease) in physical capital per worker from 2025 to 2026 is associated with (a In crease or decrease) in labor productivity from 2025 to 2026.
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 printing industry? Choose all that apply.
1. Subsidizing research and development of new printing technologies
2. Imposing restrictions on foreign ownership of domestic capital
3. Imposing a tax on printing presses
4. Offering free public education to every worker in the country
Year Physical Capital Labor Force Physical Capital per Worker Labor Hours Output Labor Productivity (Printing presses) (Workers) (Printing presses) (Hours) (Books) (Books per hour of labor) 2025 120 60 _____________ 3,000 21,000 _______________ 2026 400 100 _____________ 3,500 49,000 _______________Explanation / Answer
In order to increase productivity, each worker must be able to produce more output. The only way for this to occur is through an in increase in the capital utilized in the production process. This increase can be in the form of either human capital or physical capital.
The following given policies would lead to change in productivity in the printing industry.
1.Subsidizing research and development of new printing technologies: This policy will help the small island to conduct more research as it will be less costly after getting subsidies from the government. The research and development of printing technollogy will help the small island to attract more capital in the printing industry Thus, with more capital and advanced technology, each worker will be able to produce more and eventually leads to increased productivity.
2. Imposing restrictions on foreign ownership of domestic capital : Imposing restrictions on the foreign investments will barred the foreign investors to invest in the small island. therefore, the policy will not contribute to increased productivity in printing industry.
3. Imposing a tax on printing presses:Imposing tax will lead to decreased profit for the firms which can cause investors to move in different industry. This will result in less capital in the printing industry which will eventually result in decreased productivity of workers in the printing industry.
4. Offering free public education to every worker in the country : The policy will help to increase the skills of the workers which will help them to work more effectively and efficiently. thus, skilled workers will increase margins of the business and attract more investors due to which the productivity will increase.
Year Physical Capital Labor Force Physical Capital per Worker Labor Hours Output Labor Productivity (Printing presses) (Workers) (Printing presses) (Hours) (Books) (Books per hour of labor) 2025 120 60 _____2________ 3,000 21,000 ______7_________ 2026 400 100 ____4_________ 3,500 49,000 _______14________