**Problem 2.**a. In the neoclassical growth model, there are diminishing returns to physical capital and diminishing returns to human capital. But there are constant returns to scale. Hence, the economy can grow forever by accumulating both kinds of capital without ever facing diminishing returns. Comment the various aspects of this statement.b. Discuss the “rivalry” and “excludability” properties of each of the following goods.- a. An aspirin- b. The formula to produce aspirin- c. Cable TV- d. Lobsters in the Atlantic Ocean- e. A cow in a farm- f. A zoom meeting- g. A grilled cheese sandwich- h. The Pythagoras theorem- i. The Solow model

Answered: Problem 2. a. In the neoclassical…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Problem 2.**

a. In the neoclassical growth model, there are diminishing returns to physical capital and diminishing returns to human capital. But there are constant returns to scale. Hence, the economy can grow forever by accumulating both kinds of capital without ever facing diminishing returns. Comment the various aspects of this statement.

b. Discuss the “rivalry” and “excludability” properties of each of the following goods.

- a. An aspirin
- b. The formula to produce aspirin
- c. Cable TV
- d. Lobsters in the Atlantic Ocean
- e. A cow in a farm
- f. A zoom meeting
- g. A grilled cheese sandwich
- h. The Pythagoras theorem
- i. The Solow model

Expert Solution

Step 1

Neoclassical growth theory is AN theory that explains however the confluence of 3 driving forces—labor, capital, and technology—leads to a continuing rate of economic enlargement.
Economic growth, consistent with the speculation, is that the consequence of 3 factors: labour, capital, and technology.While AN economy's capital and labour resources area unit restricted, technology's contribution to growth is limitless.In the classical paradigm, decreasing returns to capital accumulation play a essential role in proscribing growth