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Flashcards in Learning by Doing Model Deck (8)
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1
Q

Which are some assumptions for firms in the Learning by doing model?

A
  • All firms have the same production function

- The production function’s constant returns allow endogenous growth in the economy

2
Q

Which is a particular characteristic from the Learning by doing model?

A

There are no decreasing marginal returns of capital, because we assume that accrued knowledge is a subproduct of the investment in physical capital (learning by doing)

3
Q

Which are the Learning by doing model’s two main assumptions?

A
  1. An increase in capital stock will lead to an increase in knowledge (technology grows parallel to investment)
  2. Knowledge spillovers; once it is invented, it is available to everyone
4
Q

How does labor behave in the Learning by doing model?

A

It is constant

5
Q

The Learning by doing model finds scale effects - what does this mean?

A

The economy’s growth rate and the income per capita growth rate depend on the economy’s total population, L

6
Q

Which is the Learning by doing model’s market failure?

A

Firms are not aware about knowledge spillovers

7
Q

Which is the optimal solution for the Learning by doing model?

A

The social planner solution, because it internalizes the market failure (asymmetrical information) and has a higher growth rate than that for the market and the Robinson Crusoe solutions

8
Q

Which mechanisms could be implemented to reach an optimal solution?

A
  • Subsidies

- Taxes