Answer :
Sustained, long-run improvements in the standard of living cannot be achieved solely by increasing physical capital per worker or human capital per worker.
The point made in class is that sustained, long-run improvements in the standard of living cannot be solely produced by increasing physical capital per worker or human capital per worker. While these factors are important contributors to economic growth and productivity, they have limitations in driving continuous improvements in the standard of living over the long term.
a) As discussed, increasing physical capital per worker has its limits because of diminishing returns to capital. In the early stages of development, adding more physical capital, such as machinery and technology, can significantly boost productivity. However, as an economy approaches its production capacity, the additional gains from each unit of capital investment diminish, leading to a slowdown in overall economic growth.
Similarly, increasing human capital per worker through education, training, and skill development is crucial for enhancing productivity. However, once a certain level of human capital is attained across the workforce, the incremental benefits of further education may not be enough to drive substantial and sustained improvements in the standard of living.
To achieve sustainable and long-term improvements in the standard of living, other factors such as technological innovation, research and development, institutional reforms, efficient resource allocation, and a conducive business environment are essential. These factors can foster productivity gains, promote entrepreneurship, and create opportunities for economic growth, leading to lasting improvements in the overall quality of life for a society.
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