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In: Economics

Please define what the differences are between Hicks neutral technical progress compared to Harrod neutral technical...

Please define what the differences are between Hicks neutral technical progress compared to Harrod neutral technical progress.

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Expert Solution

Answer:
Technical progress plays an important role in determining the pace of the economic growth of a nation. Because of these technical changes which leads in an increased output per unit labor.
Harrod neutral Technical progress focuses on the improvement of technology that would increase the efficiency of the labor. So Harrod neutral Technical progress allows the producers to achieve more output with less input. This will result in lower expenses and on a large scale it can boost economic growth.

Hick's neutral technical change is defined in terms of change of production function of the business industry which is satisfied by certain economic neutrality conditions. In Hick's neutral technical progress, technical progress was classified in following two categories:

  • Capital Saving technical changes : In this scenario progress is being achieved by decreasing the capital cost which is needed to create the product either by decreasing the rent or some other ways.
  • Labor Saving technical changes : In this scenario progress is being achieved by decreasing the wages of the labor which in turn decreases the total cost needed to create a aprticular good.

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