Question

Consider the interaction between labor and capital within the production process and answer the following questions.

How do economists refer to the amount of capital employed per worker?
a. capital productivity
b. the capital stock
c. the human capital percentage
d. the capital‑labor ratio

What would likely happen if the amount of capital employed per worker grew?
a. Wages would fall because capital would be more important in production.
b. Wages would fall because physical capital would replace human capital.
c. Wages would be unchanged because wages are unaffected by the quantity of capital.
d. Wages would rise because workers would become more productive.

Answer 1

Answer:

d. the capital‑labor ratio

d. Wages would rise because workers would become more productive.

Explanation:

The capital stock is the amount of capital available in the economy. Dividing this by the number of workers produces the capital‑labor ratio.

Labor productivity is output divided by the number of workers (or labor hours, or some other measure of the use of labor). If labor productivity rises, workers are more valuable to employers and wages should rise.

As one factor grows relative to another, the faster‑growing factor's marginal productivity tends to go down relative to the slower‑growing factor's marginal productivity.

Labor productivity can grow because labor has more capital to use (that is, the capital‑labor ratio grows), or because workers have newly acquired skills and know‑how. This is known as human capital. Technological advances can also make labor more productive. All of these are important factors in economic growth.