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Distinguish between the terms capital and investment as used by economists - Leaving Cert Economics - Question b - 2015
Question b
Distinguish between the terms capital and investment as used by economists. Discuss the case for and against the Government investing in Ireland’s railways.
Worked Solution & Example Answer:Distinguish between the terms capital and investment as used by economists - Leaving Cert Economics - Question b - 2015
Step 1
Distinguish between the terms capital and investment as used by economists.
Answer
Capital refers to any resource made by humans that is used in the production of goods and services. This includes machinery, equipment, and tools. It is considered a stock concept since it is a resource that can be measured at a specific point in time.
On the other hand, investment is the process by which resources are allocated to generate future benefits, particularly through the production of capital goods. Investment can refer to the purchasing of physical assets, or it can represent additional spending on existing capital. It is a flow concept because it refers to the changes in capital over a period of time.
Step 2
Discuss the case for and against the Government investing in Ireland’s railways.
Answer
The case for government investment in railways:
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Facilitates Geographic Mobility: Investing in railways allows people to travel more easily across the country, facilitating both work and leisure activities.
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Balanced Regional Development: Improved rail infrastructure can promote economic growth in underdeveloped regions, thereby enhancing overall regional equity in terms of living standards.
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Less Traffic Gridlock: Efficient rail transport can reduce the number of vehicles on the roads as people opt for trains, decreasing congestion as the economy grows.
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Improved Infrastructure: A commitment to updating and maintaining rail facilities ensures that services remain reliable, encouraging more usage and consequently enhancing economic activity.
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Social Benefits: Increased public transport access through railways can aid those without private vehicles, supporting social inclusion and mobility.
The case against government investment in railways:
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Very Capital Intensive: The significant funding required for capital projects such as railway infrastructure may increase national debt, which could affect fiscal policy adversely.
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Long-Term Commitment: Railway investments involve long-term planning and expenditures, raising risks if future demand diminishes.
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Opportunity Costs: Investments in railways might divert funds from other essential public services, like healthcare or education, which may offer higher immediate returns.
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Reduction in Demand for Rail Services: Existing competition from bus services and improved road infrastructure can limit the effectiveness of railway investments, leading to underutilization of new services.
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Increased Competition from Bus Companies: Enhanced bus services can create rivalries, which might reduce passenger numbers on trains, negating the expected benefits of railway investment.