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6 votes

What's the logic behind dividing rental price of capital and wage rate by price level?

Price level is the general level of prices in an economy. It is a variable that indicates what is the purchasing power of money (see Blanchard et al. Macroeconomics: a European Perspective). You can ...
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5 votes

Where does capital come from?

Material capital is any durable good that is used as a factor of production and, by virtue of being durable, it is gradually consumed in production over a maximum possible duration of a length that is ...
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5 votes
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Is Artificial Intelligence a completely new (and underestimated) production factor?

My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because: factors of production are a stock, which produce services. What is the stock of ...
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5 votes
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Cobb-Douglas Production Function - Finding units of labour to maximise production

If your aim is to maximize the production then your approach is correct. But if the aim is to find the optimal number of units of labor, then you should solve it as a profit maximization problem with ...
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  • 342
3 votes

Piketty's explanation of elasticity of substitution (from his book Capital in the 21st century)

The following is from Thomas Piketty and Gabriel Zucman (2015, From Handbook of Income Distribution, Volume 2, Chapter 15, Part 15.5.3 which is hard to link to directly but get it here): Take a CES ...
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3 votes
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The TYPICAL law of motion of capital

$k_t$ is your capital after investment, so if you subtract the capital you carried over from last period, $k_{t-1}(1-\delta)$, you obtain the amount that must have been invested in order to have $k_t$ ...
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  • 4,158
3 votes

Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?

This is a subtle issue. First let's present a numerical example to see the head-scratching riddle. Assume $$\alpha =1/2 \implies Y = K^{1/2}L^{1/2}$$ and that the exogenously given input prices are ...
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3 votes

Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?

A clarification: The values $w,r$ are not independent of input combinations: you have already solved for $K/L$. 1) Unless you assume that the price of the output is equal to 1, there is a minor ...
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3 votes
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Static Profit Maximization Short Run Shut Down Decision

In the short run, you cannot sell your capital. To do so would be a violation of "short run" and would instead be the "long run". Case 3 (and I would also contest Case 2) are ...
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3 votes

What's the logic behind dividing rental price of capital and wage rate by price level?

You should interpret $P$ as being the price of some bundle of goods people want to consume. Then if we have some monetary amount (in dollars, euro's or some other monetary unit of account), let's call ...
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  • 753
3 votes

What is the state of the art in capital theory?

My impression as a non-economist is that there has not been much interest in the 21st century in these debates and it is not taught to students. This is misconception but understandable one (I will ...
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3 votes
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What is capital?

Capital in economics normally means machines and tools used in production. However, confusingly the national accounting uses the accounting terminology where capital just means: Definition: Capital ...
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3 votes

Budget line for mean variance utility

For example, considering the allocation between two identical assets with identical mean and variance but independent correlation. Then, the allocated portfolio reduces the variance but keeps the mean ...
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2 votes

Where does capital come from?

From a Marxist perspective, capital is a social relation. Essentially, it is money that begets more money. As such, it only becomes more or less synonim with "means of production" once it takes over ...
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2 votes

Solow model, time and steady state

In the model with technological progress the capital per effective worker remains constant, implies that capital per worker grows at the rate of exogenous rate of technological progress. See Barro and ...
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2 votes

In GDP growth studies, are factors of production measured as stock or flows?

To add to @keepAlive's answer, even when natural resources are added typically stocks are used, at least in theoretical work. The flow of the used up resource is converted to a stock variable by ...
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2 votes

Difference between Outflow of capital and Flight of capital

This is actually pretty tricky, as "capital flight" can be a contested term itself. Here's a distinction provided by Darryl McLeod in the Concise Encyclopedia of Economics, edited by David Henderson ...
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2 votes

What are exactly considered resources in modern economics?

What I think you want to consider to be grouped with land, labour and capital is another factor to be considered with labor- technology (A.K.A "Knowledge*). The term "technology" here means an ...
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2 votes
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Why does the bond market induce efficient allocation of capital?

This is no different from any other markets... just for money. On the demand side of the goods, those who want money (those who sell bonds) say how much they're willing to pay in terms of bond yields....
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2 votes

What is "industrial capitalism"?

Industrial capitalism, characterized by its use of heavy machinery and a much more pronounced division of labor. It is a system whereby industry and resources are owned by few for profit. In this ...
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2 votes

Capital/Income Ratio in Pikketty's Capital

First, important thing to note here is that $K/Y$ is not the capital income to labor income ratio, but ratio of capital to total income (or output which is macro-economically equivalent to income). $K$...
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  • 43.6k
2 votes
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What's the difference of economic capital and liquidity buffer?

Different sides of the balance sheet. Capital represents long-dated instruments (infinite lifetime in the case of common equity) issued by a bank that are subordinated in a way to make them ...
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2 votes

What does "capital used as structure" means?

This is not really an economic terminology. Many words can have multiple meaning in common English. According to the Oxford dictionary: structure /ˈstrʌktʃə / ▸ noun 1 the arrangement of and ...
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2 votes

In the context of banking, how (if at all) do the terms 'capital', 'net worth', and 'equity' differ?

Consider this... A bank's capital is used to finance the purchase of assets. Those assets are mostly loans made to households and businesses and governments. When a loan is made the bank is "buying" ...
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2 votes

What is the main difference between FDI and short run capital inflows/outflows?

The term FDI is generally reserved for foreign capital investment in domestic assets of the host country for business interests as opposed to hot flows which are generally aimed for quick capital ...
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  • 1,630
2 votes

What happened when the money from share issuance is spent?

You are concerned about... someting that can save the bank from bankruprtcy it problems occurs, when there is no money This is an accounting question as much as an economics question. What you are ...
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  • 933
2 votes

What is the implication of perfectly reversible capital?

I think I get the answer but I am not 100% sure. Any comment would be welcome. I realized that this is related to the search-matching nature of the model (comparing to competitive labor market), so ...
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  • 2,194
2 votes

Why do derivative contracts represent no wealth?

A derivative is a financial instrument whose value is dependent on an underlying asset. However it does not represent this asset nor does it hold any claim on the asset. At the end of the day, the ...
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  • 8,642
2 votes

Cobb-Douglas Production Function - Finding units of labour to maximise production

In this thread, two problems are discussed: Problem 1: \begin{eqnarray*} \max_{l, k} & \ 16 l^{\frac{1}{4}}k^{\frac{3}{4}} \\ \text{s.t. } & 50l + 100k \leq 500,000 \\ \text{and } & l\geq ...
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