Prabudda Missaka s3211475 Page 1

PRODUCTION FUNCTION

Standard of living ; Ability to produce goods and services

Productivity; Amount of goods and services worker can produce each hour

Compounding; Accumulation of growth over a period of time

FACTORS OF PRODUCTION (INPUTS USED TO PRODUCE GOODS AND SERVICES)

Physical capital (tools and buildings)

Human capital (Knowledge and skills )

Natural resources (Land, rivers and mineral deposits)

Technical knowledge

PRODUCTION FUNCTION (THIS DESCRIBES THE RELATIONSHIP BETWEEN INPUT AND

OUTPUT)

Y= AF (L,K,H,N)

Y- Quantity of output A- Available productioyn technology L- Quantity of labour K- Quantity of physical capital H-Quantity of human capital N- Quantity of natural resources F- this is the function that shows how the inputs are combined

Y/L = A F(1, K/L, H/L, N/L) Where: Y/L = output per worker K/L = physical capital per worker H/L = human capital per worker N/L = natural resources per worker

GOVERNMENT POLICIES THAT RAISE LIVING STANDARDS

Encourage saving and investment

Encourage education and training

Promote free trade

Promote free trade

Diminishing returns = Decrease in the production as a result of increase in a factor of production while other

factors are constant.

Ex- Fertilisers increase the yield but excessive use of it can diminish the yield

Catch up effect – Poor countries achieving a faster growth compared to richer countries

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TWO TYPES OF FOREIGN INVESTMENT

Foreign portfolio – Investments financed by foreign countries but operated by domestic residents

Foreign Direct investment –Investment owned and operated by foreign country

Financial system

Group of institutions that match one person’s savings with another person’s investment

FOREIGN PORTFORLIO

Investment financed by foreign operated by domestic

Examples of financial institutions in Australian economy

Financial markets

Bond market – Bond is a certificate that specify obligations of borrower to the holder of the bond

Main terms of a bond are;

1.Term

2. Credit risk

3. Tax treatment

Stock market

Financial intermediaries

Banks

Managed funds

Share; Claim to partial ownership of a firm

Equity financing; Sale of stocks to raise money

Managed fund; Institution that sells shares to public