Question 1

a) Main components of productivity are differences in technology and differences in

efficiency.

d) In equilibrium and in properly functioning economy, optimal allocation of labor

force among sectors happens automatically because of two factors. First, labor
must be paid its marginal product as a wage instead based on average productivity.
Second, if the marginal product for the same unit of labor varies in two sectors of
the economy, then workers will have incentive to transfer from to the sector with
high marginal product.
The total production will be maximized when the marginal products of labor in the
two sectors are the same.

b) Productivity differences among countries can themselves be decomposed in part as

a result of differences in technology and in part as a result of differences in
efficiency (Weil page65).