Page 523 - The Principle of Economics

over time. But, in fact, the opposite is more nearly true. The prices of most nat- ural resources (adjusted for overall inflation) are stable or falling. It appears that our ability to conserve these resources is growing more rapidly than their sup- plies are dwindling. Market prices give no reason to believe that natural resources are a limit to economic growth.
QUICK QUIZ: List and describe four determinants of a country’s productivity.
ECONOMIC GROWTH AND PUBLIC POLICY
So far, we have determined that a society’s standard of living depends on its abili- ty to produce goods and services and that its productivity depends on physical capital, human capital, natural resources, and technological knowledge. Let’s now turn to the question faced by policymakers around the world: What can govern- ment policy do to raise productivity and living standards?
THE IMPORTANCE OF SAVING AND INVESTMENT
Because capital is a produced factor of production, a society can change the amount of capital it has. If today the economy produces a large quantity of new capital goods, then tomorrow it will have a larger stock of capital and be able to produce more of all types of goods and services. Thus, one way to raise future pro- ductivity is to invest more current resources in the production of capital.
One of the Ten Principles of Economics presented in Chapter 1 is that people face tradeoffs. This principle is especially important when considering the accumula- tion of capital. Because resources are scarce, devoting more resources to producing capital requires devoting fewer resources to producing goods and services for cur- rent consumption. That is, for society to invest more in capital, it must consume less and save more of its current income. The growth that arises from capital accu- mulation is not a free lunch: It requires that society sacrifice consumption of goods and services in the present in order to enjoy higher consumption in the future.
CHAPTER 24 PRODUCTION AND GROWTH 537
TECHNOLOGICAL PROGRESS LEADS TO NEW PRODUCTS, SUCH AS THIS HYBRID ELECTRIC/GAS-POWERED CAR, THAT REDUCE OUR DEPENDENCE ON NONRENEWABLE RESOURCES.