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Economics 2H03 - Macro IChapter 3 National Income

Neoclassical Theory of Distribution

Constant returns to scale

if inputs are doubled, output is doubled

2 more people with two more machines

give twice as much output

an increase in inputs = an increase output

Production Functions

available technology will determine the function

available technology is expressed by the function

more produced with better technology

determinant of output

based on input

Factors of Production

INPUTS

denoted by

L

K

used to produce goods and services

Consit of

labour

time people spend working

capital

tools used in production