Question

Explain the diminishing returns to capital. Use the example of North Korea and South Korea to explain how diminishing returns to capital would affect both countries' output.

Answer 1

Law of diminishing return to capital refer to the principle for lawwhen among other factor of production like labour gets increased keeping other factors like capital or land is kept constant the output received on every unit of variable factor diminish eventually. for achieving higher growth rates by an economy despite existing the diminishing return to capital helps in bringing the technological changes by new machines advanced technology or production process reorganized or new patterns. All these leads to enhancement of the productivity. capital stock of the South Korea are mostly based on long term investment in the buildings and the machinery and the equipments. Impact of the different input measures of capital have effect on the growth of total factor productivity when stock is considered a flow and measure of capital. Comparative levels of intensity of capital and productivity of labour are assessed. Economy of North Korea is controlled tightly and also isolated. Lack in fulfilling the basic needs of the citizens. data of North Korean economy is nonexistent and unreliable and outdated. Hence analysis is difficult. Economy of South Korea is highly advanced and economic growth is dependent on exports.