Two Countries, Highland and Lowland, Are Described by the Solow

question 14

Essay

Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labour-augmenting technological progress is higher in Highland than in Lowland.
a.In which country is the steady-state growth rate of output per effective worker higher?
b.In which country is the steady-state growth rate of total output higher?
c.Does the Solow growth model predict that the two economies will converge to the same steady state?

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Definitions:

Price Takers

Entities that have no power to influence the market price of the product they are selling or buying; they accept the prevailing market price.

Marginal Revenue

The extra revenue generated by the sale of an additional unit of a product or service.

Total Revenue

The total amount of money earned by a firm from selling its goods or services before any costs are subtracted.

Market Price

The immediate cost at which one can buy or sell an asset or service within the market context.