Aggregate Production and Productivity

These flashcards cover key concepts related to aggregate production, factors of production, production functions, and their respective characteristics and implications in economics.

Factors of Production

Inputs used in the production process, primarily labor (L) and capital (K).

Production Function

A mathematical representation of how output (Y) is related to factor inputs (K and L), expressed as Y = AF(K,L).

Cobb-Douglas Production Function

A specific type of production function represented as Y = F(K, L) = AK^0.3L^0.7, indicating the relation between output, capital, and labor.

Marginal Product of Capital (MPK)

The additional output resulting from the use of one more unit of capital, holding other inputs constant.

Marginal Product of Labor (MPL)

The additional output resulting from the use of one more unit of labor, holding other inputs constant.

Diminishing Marginal Product

The principle that as the quantity of a factor input increases, the increase in output from additional units of that input declines.

Supply Shock

An unexpected event that affects the supply of goods and services in an economy, altering the production capacity from existing inputs.

Real Economic Profits

The profit calculated after accounting for the real rental price of capital and real wage rate, as opposed to nominal values.

Equilibrium in Factor Markets

A state where the supply and demand for labor and capital are balanced, leading to stable prices in their respective markets.

National Income (Y)

The total income earned by factors of production in an economy, consisting of labor and capital payments.