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Chapter 25

Production
   and
 Growth
Marshmallows
How many
 marshmallows would
you have in 24 hours if
 you started with one
and they were doubled
  every 15 minutes?
96
2
96
2
96
               2

79,228,162,514,264,300,000,000,000,000
96
               2

79,228,162,514,264,300,000,000,000,000



                   x 1,200
Productivity
Productivity

 Output
divided by
   Input
How do we go
 from this...




  to this?
1800          2010        Change

      Population         one billion seven billion     7x

    Life Expectancy       26 years     66 years       40 +

GDP Per Capita Per Day      $3           $30          10 x
GDP
                           Per Capita



                                                   Source:
                                https://www.google.com.sa/publicdata/explore?
          ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=world%20gdp#!
ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&ifdim=regi
                                  on&tdim=true&hl=en_US&dl=en&ind=false
GDP
                             Per Capita
GDP: $70,000,000,000,000
Population: 7,000,000,000
GDP Per Capita: $10,000
                                                     Source:
                                  https://www.google.com.sa/publicdata/explore?
            ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=world%20gdp#!
  ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&ifdim=regi
                                    on&tdim=true&hl=en_US&dl=en&ind=false
Eco 202 ch 25 production and costs
Rates
    and
Compounding
Rates
    and
Compounding
  Linear
  versus
Exponential
Linear versus Exponential
Adding versus Compounding
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8

 0
     1   2   3   4   5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8

 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8
           6
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8
                8
           6
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16

 8                   10
                8
           6
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16
                          12
 8                   10
                8
           6
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16
                          12
 8                   10
                8
           6
       4
 0 2
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16
                          12
 8                   10
                8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32

24

16
                16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64

56

48

40

32
                     32
24

16
                16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64
                          64
56

48

40

32
                     32
24

16
                16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64
                          64
56

48

40

32
                     32
24

16                             +
                16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Linear versus Exponential
 Adding versus Compounding
64
                               ^
                          64
56

48

40

32
                     32
24

16                             +
                16
                          12
 8                   10
           8    8
           6
 0 2   4
   1   2   3    4    5    6
Rule of 70s
  Years to Double
         70
     divided by
 the rate of growth

      70
Rate of Growth
Rate   Years to Double
 1%
 2%
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%      70 ÷ 4 = 17.5
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%      70 ÷ 4 = 17.5
 5%      70 ÷ 5 = 14
Rate   Years to Double
 1%
 2%
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%      70 ÷ 4 = 17.5
 5%
Rate   Years to Double
 1%      70 ÷ 1 = 70
 2%      70 ÷ 2 = 35
 3%      70 ÷ 3 = 23.3
 4%      70 ÷ 4 = 17.5
 5%      70 ÷ 5 = 14
Why do
Standards of Living
      differ?
Why do
Standards of Living
      differ?
   Productivity
Productivity
Productivity

 Better at
making stuff
Capital
Capital
 Financial Capital
  Physical Capital
Intellectual Capital
  Human Capital
Financial Capital
Financial Capital
      Money

 Allows us to store
labor and shift time
Physical Capital
Physical Capital
   Two types

      Tools

Natural Resources
Physical Capital
Physical Capital
Tools we use to make stuff

   Natural Resources
      Renewable
    Non-renewable
Intellectual Capital
Intellectual Capital
    Technology

How the world works
Human Capital
Human Capital
Knowledge and Skills
Health and Nutrition
        Trust
   Relationships
   Social Capital
      Culture
I look for three things in
       hiring people.

    The first is personal
  integrity, the second is
intelligence, and the third
   is a high energy level.      - Warren Buffett, CEO,
                                 Berkshire Hathaway
 But of you don’t have the
first, the other two will kill
            you.
Eco 202 ch 25 production and costs
Intellectual Capital
Intellectual Capital   Human Capital
Spend or Save?
Spend or Save?

  Savings
  versus
Consumption
Four Steps
Four Steps
Increase Productivity
Four Steps
Increase Productivity
  Capital Expansion
Four Steps
Increase Productivity
  Capital Expansion
     Investment
Four Steps
Increase Productivity
  Capital Expansion
     Investment
       Savings
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation




Right capital at the right time
Innovation - Productivity
Innovation
Education
Education
 Each year in school
 adds 10 percent to
       income

Invest versus consume
Health & Nutrition
Property Rights
  Rule of Law
Political Stability
Free Trade
Free Trade
Free Trade
Research and
Development
Research and
   Development
   Patent System
20 Year Monopoly on
      your idea
Population
 Growth
Population
  Growth
More people
Smaller slices
 Larger pie?
Population
 Growth
Population
       Growth
Productivity increased
faster than population
Eco 202 ch 25 production and costs
Eco 202 ch 25 production and costs
U.S. Farmers
1900 - 40 percent
 2012 - 2 percent
Productivity Growth
Productivity Growth
   More people
    More ideas
 More innovation
   More Wealth

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Eco 202 ch 25 production and costs