Chapter 25Production   and Growth
Marshmallows
How many marshmallows wouldyou have in 24 hours if you started with oneand they were doubled  every 15 minutes?
962
962
96               279,228,162,514,264,300,000,000,000,000
96               279,228,162,514,264,300,000,000,000,000                   x 1,200
Productivity
Productivity Outputdivided by   Input
How do we go from this...  to this?
1800          2010        Change      Population         one billion seven billion     7x    Life Expectancy       26 year...
GDP                           Per Capita                                                   Source:                        ...
GDP                             Per CapitaGDP: $70,000,000,000,000Population: 7,000,000,000GDP Per Capita: $10,000        ...
Rates    andCompounding
Rates    andCompounding  Linear  versusExponential
Linear versus ExponentialAdding versus Compounding
Linear versus Exponential Adding versus Compounding64564840322416 8 0     1   2   3   4   5    6
Linear versus Exponential Adding versus Compounding64564840322416 8 0 2   1   2   3    4    5    6
Linear versus Exponential Adding versus Compounding64564840322416 8       4 0 2   1   2   3    4    5    6
Linear versus Exponential Adding versus Compounding64564840322416 8           6       4 0 2   1   2   3    4    5    6
Linear versus Exponential Adding versus Compounding64564840322416 8                8           6       4 0 2   1   2   3  ...
Linear versus Exponential Adding versus Compounding64564840322416 8                   10                8           6     ...
Linear versus Exponential Adding versus Compounding64564840322416                          12 8                   10      ...
Linear versus Exponential Adding versus Compounding64564840322416                          12 8                   10      ...
Linear versus Exponential Adding versus Compounding64564840322416                          12 8                   10      ...
Linear versus Exponential Adding versus Compounding64564840322416                          12 8                   10      ...
Linear versus Exponential Adding versus Compounding64564840322416                16                          12 8         ...
Linear versus Exponential Adding versus Compounding6456484032                     322416                16                ...
Linear versus Exponential Adding versus Compounding64                          6456484032                     322416      ...
Linear versus Exponential Adding versus Compounding64                          6456484032                     322416      ...
Linear versus Exponential Adding versus Compounding64                               ^                          6456484032 ...
Rule of 70s  Years to Double         70     divided by the rate of growth      70Rate of Growth
Rate   Years to Double 1% 2% 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2% 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4%      70 ÷ 4 = 17.5 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4%      70 ÷ 4 = 17.5 5%      70 ÷ 5 ...
Rate   Years to Double 1% 2% 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2% 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3% 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4% 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4%      70 ÷ 4 = 17.5 5%
Rate   Years to Double 1%      70 ÷ 1 = 70 2%      70 ÷ 2 = 35 3%      70 ÷ 3 = 23.3 4%      70 ÷ 4 = 17.5 5%      70 ÷ 5 ...
Why doStandards of Living      differ?
Why doStandards of Living      differ?   Productivity
Productivity
Productivity Better atmaking stuff
Capital
Capital Financial Capital  Physical CapitalIntellectual Capital  Human Capital
Financial Capital
Financial Capital      Money Allows us to storelabor and shift time
Physical Capital
Physical Capital   Two types      ToolsNatural Resources
Physical Capital
Physical CapitalTools we use to make stuff   Natural Resources      Renewable    Non-renewable
Intellectual Capital
Intellectual Capital    TechnologyHow the world works
Human Capital
Human CapitalKnowledge and SkillsHealth and Nutrition        Trust   Relationships   Social Capital      Culture
I look for three things in       hiring people.    The first is personal  integrity, the second isintelligence, and the thi...
Intellectual Capital
Intellectual Capital   Human Capital
Spend or Save?
Spend or Save?  Savings  versusConsumption
Four Steps
Four StepsIncrease Productivity
Four StepsIncrease Productivity  Capital Expansion
Four StepsIncrease Productivity  Capital Expansion     Investment
Four StepsIncrease Productivity  Capital Expansion     Investment       Savings
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital Allocation
Capital AllocationRight capital at the right time
Innovation - Productivity
Innovation
Education
Education Each year in school adds 10 percent to       incomeInvest versus consume
Health & Nutrition
Property Rights  Rule of LawPolitical Stability
Free Trade
Free Trade
Free Trade
Research andDevelopment
Research and   Development   Patent System20 Year Monopoly on      your idea
Population Growth
Population  GrowthMore peopleSmaller slices Larger pie?
Population Growth
Population       GrowthProductivity increasedfaster than population
U.S. Farmers1900 - 40 percent 2012 - 2 percent
Productivity Growth
Productivity Growth   More people    More ideas More innovation   More Wealth
Eco 202 ch 25 production and costs
Eco 202 ch 25 production and costs
Eco 202 ch 25 production and costs
Eco 202 ch 25 production and costs
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Eco 202 ch 25 production and costs

  1. 1. Chapter 25Production and Growth
  2. 2. Marshmallows
  3. 3. How many marshmallows wouldyou have in 24 hours if you started with oneand they were doubled every 15 minutes?
  4. 4. 962
  5. 5. 962
  6. 6. 96 279,228,162,514,264,300,000,000,000,000
  7. 7. 96 279,228,162,514,264,300,000,000,000,000 x 1,200
  8. 8. Productivity
  9. 9. Productivity Outputdivided by Input
  10. 10. How do we go from this... to this?
  11. 11. 1800 2010 Change Population one billion seven billion 7x Life Expectancy 26 years 66 years 40 +GDP Per Capita Per Day $3 $30 10 x
  12. 12. GDP Per Capita Source: https://www.google.com.sa/publicdata/explore? ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=world%20gdp#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&ifdim=regi on&tdim=true&hl=en_US&dl=en&ind=false
  13. 13. GDP Per CapitaGDP: $70,000,000,000,000Population: 7,000,000,000GDP Per Capita: $10,000 Source: https://www.google.com.sa/publicdata/explore? ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=world%20gdp#! ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&ifdim=regi on&tdim=true&hl=en_US&dl=en&ind=false
  14. 14. Rates andCompounding
  15. 15. Rates andCompounding Linear versusExponential
  16. 16. Linear versus ExponentialAdding versus Compounding
  17. 17. Linear versus Exponential Adding versus Compounding64564840322416 8 0 1 2 3 4 5 6
  18. 18. Linear versus Exponential Adding versus Compounding64564840322416 8 0 2 1 2 3 4 5 6
  19. 19. Linear versus Exponential Adding versus Compounding64564840322416 8 4 0 2 1 2 3 4 5 6
  20. 20. Linear versus Exponential Adding versus Compounding64564840322416 8 6 4 0 2 1 2 3 4 5 6
  21. 21. Linear versus Exponential Adding versus Compounding64564840322416 8 8 6 4 0 2 1 2 3 4 5 6
  22. 22. Linear versus Exponential Adding versus Compounding64564840322416 8 10 8 6 4 0 2 1 2 3 4 5 6
  23. 23. Linear versus Exponential Adding versus Compounding64564840322416 12 8 10 8 6 4 0 2 1 2 3 4 5 6
  24. 24. Linear versus Exponential Adding versus Compounding64564840322416 12 8 10 8 6 4 0 2 1 2 3 4 5 6
  25. 25. Linear versus Exponential Adding versus Compounding64564840322416 12 8 10 8 6 0 2 4 1 2 3 4 5 6
  26. 26. Linear versus Exponential Adding versus Compounding64564840322416 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  27. 27. Linear versus Exponential Adding versus Compounding64564840322416 16 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  28. 28. Linear versus Exponential Adding versus Compounding6456484032 322416 16 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  29. 29. Linear versus Exponential Adding versus Compounding64 6456484032 322416 16 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  30. 30. Linear versus Exponential Adding versus Compounding64 6456484032 322416 + 16 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  31. 31. Linear versus Exponential Adding versus Compounding64 ^ 6456484032 322416 + 16 12 8 10 8 8 6 0 2 4 1 2 3 4 5 6
  32. 32. Rule of 70s Years to Double 70 divided by the rate of growth 70Rate of Growth
  33. 33. Rate Years to Double 1% 2% 3% 4% 5%
  34. 34. Rate Years to Double 1% 70 ÷ 1 = 70 2% 3% 4% 5%
  35. 35. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 4% 5%
  36. 36. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 5%
  37. 37. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 70 ÷ 4 = 17.5 5%
  38. 38. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 70 ÷ 4 = 17.5 5% 70 ÷ 5 = 14
  39. 39. Rate Years to Double 1% 2% 3% 4% 5%
  40. 40. Rate Years to Double 1% 70 ÷ 1 = 70 2% 3% 4% 5%
  41. 41. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 4% 5%
  42. 42. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 5%
  43. 43. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 70 ÷ 4 = 17.5 5%
  44. 44. Rate Years to Double 1% 70 ÷ 1 = 70 2% 70 ÷ 2 = 35 3% 70 ÷ 3 = 23.3 4% 70 ÷ 4 = 17.5 5% 70 ÷ 5 = 14
  45. 45. Why doStandards of Living differ?
  46. 46. Why doStandards of Living differ? Productivity
  47. 47. Productivity
  48. 48. Productivity Better atmaking stuff
  49. 49. Capital
  50. 50. Capital Financial Capital Physical CapitalIntellectual Capital Human Capital
  51. 51. Financial Capital
  52. 52. Financial Capital Money Allows us to storelabor and shift time
  53. 53. Physical Capital
  54. 54. Physical Capital Two types ToolsNatural Resources
  55. 55. Physical Capital
  56. 56. Physical CapitalTools we use to make stuff Natural Resources Renewable Non-renewable
  57. 57. Intellectual Capital
  58. 58. Intellectual Capital TechnologyHow the world works
  59. 59. Human Capital
  60. 60. Human CapitalKnowledge and SkillsHealth and Nutrition Trust Relationships Social Capital Culture
  61. 61. I look for three things in hiring people. The first is personal integrity, the second isintelligence, and the third is a high energy level. - Warren Buffett, CEO, Berkshire Hathaway But of you don’t have thefirst, the other two will kill you.
  62. 62. Intellectual Capital
  63. 63. Intellectual Capital Human Capital
  64. 64. Spend or Save?
  65. 65. Spend or Save? Savings versusConsumption
  66. 66. Four Steps
  67. 67. Four StepsIncrease Productivity
  68. 68. Four StepsIncrease Productivity Capital Expansion
  69. 69. Four StepsIncrease Productivity Capital Expansion Investment
  70. 70. Four StepsIncrease Productivity Capital Expansion Investment Savings
  71. 71. Capital Allocation
  72. 72. Capital Allocation
  73. 73. Capital Allocation
  74. 74. Capital Allocation
  75. 75. Capital Allocation
  76. 76. Capital Allocation
  77. 77. Capital Allocation
  78. 78. Capital Allocation
  79. 79. Capital Allocation
  80. 80. Capital AllocationRight capital at the right time
  81. 81. Innovation - Productivity
  82. 82. Innovation
  83. 83. Education
  84. 84. Education Each year in school adds 10 percent to incomeInvest versus consume
  85. 85. Health & Nutrition
  86. 86. Property Rights Rule of LawPolitical Stability
  87. 87. Free Trade
  88. 88. Free Trade
  89. 89. Free Trade
  90. 90. Research andDevelopment
  91. 91. Research and Development Patent System20 Year Monopoly on your idea
  92. 92. Population Growth
  93. 93. Population GrowthMore peopleSmaller slices Larger pie?
  94. 94. Population Growth
  95. 95. Population GrowthProductivity increasedfaster than population
  96. 96. U.S. Farmers1900 - 40 percent 2012 - 2 percent
  97. 97. Productivity Growth
  98. 98. Productivity Growth More people More ideas More innovation More Wealth

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