One aspect of globalization that was not discussed directly in the book is marke
ID: 1204594 • Letter: O
Question
One aspect of globalization that was not discussed directly in the book is market size. That is, if countries open their markets to each other, then intermediate good firms effectively have more customers to sell to. In this problem you need to work through the effect of this on output per worker in a Romer model of innovation. You do not need to do complicated math for this (although you are welcome to if you'd like) Selling to a larger market is like increasing L, population. What effect does this have on the profits of any single intermediate goods firm? What effect does this change in profits have on the incentives for people to work as researchers as opposed to as production workeres? Specifically, what do you think will happen to S_R? Given the effect on S_R, what happens to the long-run growth rate of output per worker? Assume lambda = 1 and Phi = 0. Be specific. Does the change in S_R shift the balanced growth path up or down? Explain your answer.Explanation / Answer
Romer model is an endogenous growth model assuming how capital and technology are significant for growth and development of the economy.With global market integration there are more buyers for intermediate goods through out the markets . Larger market allow great trading options for the producing country and more options for buyers to choose from allowing them to purchase at world trade prices than monopoly prices . The profit of a single intermediate firm will certainly increase with the same .
Technology depends upon new ideas innovation and R&d used by the firm .The level of ideas should continously grow to reproduce new ideas helping the firm to be more productive and innovative. High profit will alow businesses to spend more on their research and skill development areas than before . Due to this long run growth and ouptut per worker will also increase due to fall in marginal cost and production along with innovative and specialised production possibilities . The shift of Sr will shift balanced growth output will be much higher than before shifting it up with rise in technology and output rise .
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.