ACUNA, JESSA MAE

LAGUNA, SWEET BABES

JORGE, MA.SONIA
 Components of Income and Output
Output- derived by combining various factors of production which
include the land , capital, and labor

Income – is the revenue a business earns from selling its goods and
services or the money an individual receives in compensation for his or
her labor, services, or investment.

Production function- is a useful tool for analyzing the process of

economic growth.
Formula: Y=f(K,L)
where :
L- as labor
K- capital
Y- output or income
f- general function
Law of diminishing returns- A concept of economics that if one
factor of production is increased while other factors are held constant.

Total Factor Productivity

Multifactor Productivity- also known as total factor productivity

(TFP)
Is a measure of economic performance that compares the
amount of goods and services produced to the amount of
combined outputs used to produce those goods and services.

Formula: Y=f(K,L,A)
Where:
Y= Income
K= Capital
L= labor
A= efficiency factor
F = General function
Economic Efficiency
Product Possibility Function (PPF)- Is a curve depicting
the best possible combination of goods that is produce in an
economy

Two Types of Economic Efficiency

1. Static Efficiency- this type of economic efficiency could a

one- time increase in income but it would not arrest towards
decreasing tendency.

2. Dynamic efficiency- When there is economic growth and

the scale of the production increases , or production shifts from
low productivity to more productive sector.
Technical Progress

-Reflects the growth of human knowledge , from advances in

basic science such as discovery of the laws to highly practical and
applicable a
Ideas regarding production.

Two Types of technical Progress

1. Embodied Technical Progress- has to do with the

changing nature of outputs into the production process

2. Disembodied Technical Progress- relates to the way

factors are combined together in this innovations in the workplace
such as management or organization.
Growth Theories

 Keynesian Theory- The model stress the accumulation of capital.

-Is an economic theory of total spending in the
economy and its effect s on the output and inflation

Solow or Neoclassical Theory- Stresses the neoclassical

economic principle that factors of production should be paid
the value of their marginal products.

 Power – Balance Theory- These model stress the international

power balance as an important factor in developing , including
the terms and patterns of trade which tend to keep some
countries are poor while other countries get richer.

 Structural Theory- This models emphasize the shifts in resourses

between different sectors on the supply side.
  Structural Theory- This models emphasize the shifts in
resourses between different sectors on the supply side.

-It discuss the transition from labor intensive agriculture which

relies on traditional, low productivity farming techniques , to
modern , high-productivity industries which have benefited
from innovation and more intensive use of capital and
technology,

New Growth Theory- The most recent growth theories.

-This try to endogenize technical progress and make

sense of assumptions of increasing returns to scale and
positive externalities.

-theory that posits humans desires and unlimited wants

foster ever increasing productivity and economic growth.
 The Asian Growth Miracle
•Easily the most informed and comprehensive analysis to date on how
and why East Asian countries have achieved sustained high economic
growth rates, [this book] substantially advances our understanding of
the key interactions between the governors and governed in the
development process. Students and practitioners alike will be referring
to Campos and Root’s series of excellent case studies for years to come.”
Richard L. Wilson, The Asia Foundation Eight countries in East Asia–
Japan, South Korea, Taiwan, Hong Kong, Singapore, Thailand,
Malaysia, and Indonesia–have become known as the “East Asian
miracle” because of their economies’ dramatic growth. In these eight
countries real per capita GDP rose twice as fast as in any other regional
grouping between 1965 and 1990. Even more impressive is their
simultaneous significant reduction in poverty and income inequality.
Their success is frequently attributed to economic policies, but the
authors of this book argue that those economic policies would not have
worked unless the leaders of the countries made them credible to their
business communities and citizens.
Jose Edgardo Campos and Hilton Root challenge the popular belief that
East Asia’s high performers grew rapidly because they were ruled by
authoritarian leaders. They show that these leaders had to collaborate
with various sectors of their population to create an environment that
was conducive to sustained growth. This required them to persuade the
business community that their investments would not be expropriated
and to convince the broader population that their short-term sacrifices
would be rewarded in the future. Many of the countries achieved
business cooperation by creating consultative groups, which the authors
call deliberation councils, to enhance accountability and stability. They
also obtained popular support through a variety of wealth-sharing
measures such as land reform, worker cooperatives, and wider access to
education. Finally, to inhibit favoritism and corruption that would
benefit narrow interest groups at the expense of broad-based
development, these countries’ leaders constructed a competent
bureaucracy that balanced autonomy with accountability to serve all
interests, including the poor. This provides useful lessons about how
developing and newly industrialized countries can build institutions to
implement growth-promoting policies.
First Primary Factor: Importance of Outward-Looking
Policies and the Emphasis on Exports and Foreign Direct
Investment

Second Principal Factor: Macroeconomic Policies and the

Role of Government

Third Principal Factor: Education, Labor Force Growth

and Labor Productivity

Fourth Principal Factor: Labor Market Flexibility

Initial Secondary Factor: Difference in Initial Conditions

Another Secondary Factor: Importance of Sector Policies

First Primary Factor: Importance of Outward-Looking Policies and
the Emphasis on Exports and Foreign Direct Investment

√As with other developing countries, the economies of East and

Southeast Asia started the industrialization process by developing
import-substituting industries.
√During 1960s, development economists policymakers stressed the
importance of developing a wide range of domestic industries that could
supplant imports. This line of reasoning was termed “bootstrap"
development.
√Japan in the 1960 is building a strong industrial economy based on
exports. √In the Southeast Asian countries of Malysia, Philippines and
Thailand , the initial emphasis was on agricultural based exports. But
slowly, this emphasis gave way to the development of labor-intensive
imdustries, including apparel and electronics assembly.

√Tariffs
√Tax rates and Tax distortions
 ASPECTS OF ECONOMIC
PERFORMANCE IN THE “ MIRACLE”
ECONOMIES

High growth rates of savings and

investment

Increased productivity
The policy matrix and economic
performance in South Asia

Convergence of income

1. Absolute Convergence

2. Conditional convergence