What does the following argument, which is based on diminishing marginal returns, favor the most?Even though deepening human and physical capital will tend to increase GDP per capita, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. For example, raising the average education level of the population by two years from a tenth-grade level to a high school diploma (while holding all other inputs constant) would produce a certain increase in output. An additional two-year increase, so that the average person had a two-year college degree, would increase output further, but the marginal gain would be smaller. Yet another additional two-year increase in the level of education, so that the average person would have a four-year-college bachelors degree, would increase output still further, but the marginal increase would again be smaller. A similar lesson holds for physical capital. If the quantity of physical capital available to the average worker increases, by, say, $5, 000 to $10, 000 (again, while holding all other inputs constant), it will increase the level of output. An additional increase from $10, 000 to $15, 000 will increase output further, but the marginal increase will be smaller.

TECHNOLOGY

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

What does the following argument, which is based on diminishing marginal returns, favor the most?Even though deepening human and physical capital will tend to increase GDP per capita, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. For example, raising the average education level of the population by two years from a tenth-grade level to a high school diploma (while holding all other inputs constant) would produce a certain increase in output. An additional two-year increase, so that the average person had a two-year college degree, would increase output further, but the marginal gain would be smaller. Yet another additional two-year increase in the level of education, so that the average person would have a four-year-college bachelor’s degree, would increase output still further, but the marginal increase would again be smaller. A similar lesson holds for physical capital. If the quantity of physical capital available to the average worker increases, by, say, $5, 000 to $10, 000 (again, while holding all other inputs constant), it will increase the level of output. An additional increase from $10, 000 to $15, 000 will increase output further, but the marginal increase will be smaller.

A	Aggregate Production
B	Capital Deepening
C	Convergence
D	Productivity

Explanation:

Detailed explanation-1: -Diminishing returns to physical capital is an “other things equal” statement: holding the amount of human capital per worker and the technology fixed, each successive increase in the amount of physical capital per worker results in a smaller increase in real GDP per worker.

Detailed explanation-2: -Diminishing returns implies that low-income economies could converge to the levels that the high-income countries achieve. A second argument is that low-income countries may find it easier to improve their technologies than high-income countries.

Detailed explanation-3: -Improvement in technology used will tend to increase the productivity of an economy due to which it will increase the overall GDP of an economy thus the law of diminishing marginal return has not justified in this situation. So, improvement in technology will not tend to diminishing return.

Detailed explanation-4: -Increases in the quantities of physical capital, human capital and technology per person lead to a higher standard of living over time.

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

TECHNOLOGY