Capital (K) and Labor (L)
Capital is anything that makes labor more productive. This includes (but is not limited to) education (considered “human” capital), infrastructure, machinery, and electricity.
Labor can mean an individual laborer, or one hour of work. Having more capital makes an hour of work more productive, allowing labor to get higher wages. We call this the K/L (capital to labor) ratio.
Higher K/L countries have higher wages than lower K/L ones.
If capital and labor are allowed to freely move across borders, capital rich countries will invest in low capital countries, and immigrants will go to the high K/L countries. This movement will continue until wage rates and returns on investment equalize between the countries, which is called factor price equalization.
If labor is made artificially cheap (through slavery for instance), capital adoption will slow and economic growth will stagnate. This is because all productivity increases come from capital accumulation (which raises productivity per worker).
Health Insurance Markets
Asymmetric Information | Person 1 | Person 2 | Person 3 | Person 4 | Person 5 | Total | Average |
Expected Health Care Costs | 200 | 300 | 2000 | 3000 | 4500 | 10000 | 2000 |
Charged | 2000 | 2000 | 2000 | 2000 | 2000 | | |
Expected Health Care Costs | x | x | 2000 | 3000 | 4500 | 9500 | 3166.667 |
Charged | | | 3166.667 | 3166.667 | 3166.667 | | |
Expected Health Care Costs | x | x | x | x | 4500 | 4500 | 4500 |
Charged | | | | | 4500 | | |
x = dropped out | | | | | | | |
Asymmetric information means one side (buyer or seller) knows more about the transaction than the other. In health insurance (not health care) markets, the buyers of health insurance tend to have a better grasp of their individual health than the sellers (the insurers).
However, insurers tend to know the overall population averages. The average number of cancer...