2. Name at least three components of total factor productivity (measu.pdf

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2. Name at least three components of total factor productivity (measured as output divided by the measurable inputs, i.e. Y/[KaL^1-a]), and explain what they are. (2 points each, 6 points total) Solution Components of total factor productivity are- technological change, technical efficiency and solow residual. Technological change- When total factor productivity increases due to changes in technology i.e innovations. For eg. improved design of something say cell phones. Technical efficiency- When total factor productivity increases by using the same technology and inputs in an efficient way. for eg. same unit of labor, capital and technology is used to produce more unit of output i.e improving the efficiency of inputs. Solow residual- When total factor productivity increases due factors other than techonological change and technical efficiency..

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