Consider the economies of Hermes and Gobbledigook, both of which produce gobs of goo using only tools and workers. Suppose that, during the course of 20 years, the level of physical capital per worker rises by 5 tools per worker in each economy, but the size of each labor force remains the same.
Complete the following tables by entering productivity (in terms of output per worker) for each economy in 2018 and 2058.

Blahnik
Year Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gobs of goo) (Gobs per worker)

2018 7 30 3,000
2058 11 30 3,600

Gobbledigook
Year Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gobs of goo) (Gobs per worker)

2018 4 30 2,400
2058 8 30 3,600

Initially, the number of tools per worker was higher in Blahnik than in Gobbledigook. From 2018 to 2058, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Blahnik to rise by a amount than productivity in Gobbledigook. This illustrates the concept of , which makes it for countries with low output to catch up to those with higher output.

Smaller, Diminishing return, Easier

Explanation:

In the table below the productivity per worker has been calculated by dividing the output by number of labors in each country during the period of time.

Blahnik

                            Physical Capital Labor ForceOutput        Productivity

YEAR                   (Tools/ worker)   (Workers)    (Gobs of goo)  (Gobs/worker)

2018                           7               30              3,000          100

2058                          11               30              3,600            120

Gobbledigook

                   Physical Capital         Labor ForceOutput          Productivity

YEAR         (Tools per worker)(Workers)    (Gobs of goo)(Gobs/worker)

2018             4                              30           2,400                  80

2058             8                              30            3,600            120

The 4-unit change in capital per worker causes productivity in Blahnik to rise by a smaller amount than productivity in Gobbledigook. This illustrates the concept of diminishing return , which makes it easier for countries with low output to catch up to those with higher output.

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