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The development of new technology can provide a way for an economy to sidestep the diminishing marginal returns of capital deepening. [link] shows how. The horizontal axis of the figure measures the amount of capital deepening, which on this figure is an overall measure that includes deepening of both physical and human capital. The amount of human and physical capital per worker increases as you move from left to right, from C 1 to C 2 to C 3 . The vertical axis of the diagram measures per capita output. Start by considering the lowest line in this diagram, labeled Technology 1. Along this aggregate production function, the level of technology is being held constant, so the line shows only the relationship between capital deepening and output. As capital deepens from C 1 to C 2 to C 3 and the economy moves from R to U to W, per capita output does increase—but the way in which the line starts out steeper on the left but then flattens as it moves to the right shows the diminishing marginal returns, as additional marginal amounts of capital deepening increase output by ever-smaller amounts. The shape of the aggregate production line (Technology 1) shows that the ability of capital deepening, by itself, to generate sustained economic growth is limited, since diminishing returns will eventually set in.

Capital deepening and new technology

The graph shows three upward arching lines that each represent a different technology. Improvements in technology lead to greater output per capita and deepened physical and human capital.
Imagine that the economy starts at point R, with the level of physical and human capital C 1 and the output per capita at G 1 . If the economy relies only on capital deepening, while remaining at the technology level shown by the Technology 1 line, then it would face diminishing marginal returns as it moved from point R to point U to point W. However, now imagine that capital deepening is combined with improvements in technology. Then, as capital deepens from C 1 to C 2 , technology improves from Technology 1 to Technology 2, and the economy moves from R to S. Similarly, as capital deepens from C 2 to C 3 , technology increases from Technology 2 to Technology 3, and the economy moves from S to T. With improvements in technology, there is no longer any reason that economic growth must necessarily slow down.

Now, bring improvements in technology into the picture. Improved technology means that with a given set of inputs, more output is possible. The production function labeled Technology 1 in the figure is based on one level of technology, but Technology 2 is based on an improved level of technology, so for every level of capital deepening on the horizontal axis, it produces a higher level of output on the vertical axis. In turn, production function Technology 3 represents a still higher level of technology, so that for every level of inputs on the horizontal axis, it produces a higher level of output on the vertical axis than either of the other two aggregate production functions.

Most healthy, growing economies are deepening their human and physical capital and increasing technology at the same time. As a result, the economy can move from a choice like point R on the Technology 1 aggregate production line to a point like S on Technology 2 and a point like T on the still higher aggregate production line (Technology 3). With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening.

Questions & Answers

anyone know any internet site where one can find nanotechnology papers?
Damian Reply
research.net
kanaga
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
Bharti
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
Daniel
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
Maciej
characteristics of micro business
Abigail
for teaching engĺish at school how nano technology help us
Anassong
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
NANO
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
s.
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
Tarell
what is the actual application of fullerenes nowadays?
Damian
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
Tarell
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
Virgil
is Bucky paper clear?
CYNTHIA
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
NANO
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Harper
Do you know which machine is used to that process?
s.
how to fabricate graphene ink ?
SUYASH Reply
for screen printed electrodes ?
SUYASH
What is lattice structure?
s. Reply
of graphene you mean?
Ebrahim
or in general
Ebrahim
in general
s.
Graphene has a hexagonal structure
tahir
On having this app for quite a bit time, Haven't realised there's a chat room in it.
Cied
what is biological synthesis of nanoparticles
Sanket Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
China
Cied
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
Porter
many many of nanotubes
Porter
what is the k.e before it land
Yasmin
what is the function of carbon nanotubes?
Cesar
I'm interested in nanotube
Uday
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Good
Berger describes sociologists as concerned with
Mueller Reply
Equilibrium price is a stable price and it must stay.discuss
Elvis Reply
Card 14 / 21: What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
Ali Reply

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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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