Question

Consider a small island country whose only industry is fishing. The following table shows information about the small economy in two different years.
Complete the table by calculating physical capital per worker as well as labor productivity.
Hint: Recall that productivity is defined as the amount of goods and services a worker can produce per hour. In this problem, measure productivity as the quantity of goods per hour of labor.
Year Physical Capital Labor Force Physical Capital per Worker Labor Hours Output Labor Productivity
(Fishing poles) (Workers) (Fishing poles) (Hours) (Fish) (Fish per hour of labor)
2013 300 100 _________ 5,000 45,000 ___________
2014 480 120 _________ 4,200 50,400 ___________
Based on your calculations, physical capital per worker from 2013 to 2014 is associated with labor productivity from 2013 to 2014. Suppose you're in charge of establishing economic policy for this small island country. Which of the following policies would lead to greater productivity in the weaving industry?
a. Subsidizing research and development into new weaving technologies
b. Imposing restrictions on foreign ownership of domestic capital
c. Imposing a tax on looms
d. Encouraging saving by allowing workers to set aside a portion of their earnings in tax-free retirement accounts
e. Offering free public education to every worker in the country

Answer 1

Answer:

See the explanation below.

Explanation:

Note: The data in the question are merged and they are first sorted in the attached excel file before answering the questions as follows:

1. Complete the table by calculating physical capital per worker as well as labor productivity.

Note: See the attached excel file for the calculation of the following:

Physical capital per worker in 2013 = 3

Physical capital per worker in 2014 = 4

Labor productivity in 2013 = 9

Labor productivity in 2014 = 12

2. Based on your calculations, physical capital per worker from 2013 to 2014 is associated with labor productivity from 2013 to 2014.

This is true, because as the physical capital per worker increased by one from 3 in 2013 to 4 in 2014, labor productivity increased by 3 form 9 in 2013 to 13 in 2014.

3. Suppose you're in charge of establishing economic policy for this small island country. Which of the following policies would lead to greater productivity in the weaving industry?

The correct option is a. Subsidizing research and development into new weaving technologies.

The reason is that this will increase research and development into new weaving technologies. This will in turn lead to the discovery of new weaving and more efficient technologies that will ultimately increase productivity in the weaving industry.

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