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Distinguish between the following terms, using relevant examples in each case: (i) Fixed Capital and Social Capital; (ii) Savings and Investment; (iii) Capital Widening and Capital Deepening. - Leaving Cert Economics - Question 3 (a) - 2006
Question 3 (a)
Distinguish between the following terms, using relevant examples in each case: (i) Fixed Capital and Social Capital; (ii) Savings and Investment; (iii) Capital Wi... show full transcript
Worked Solution & Example Answer:Distinguish between the following terms, using relevant examples in each case: (i) Fixed Capital and Social Capital; (ii) Savings and Investment; (iii) Capital Widening and Capital Deepening. - Leaving Cert Economics - Question 3 (a) - 2006
Step 1
Fixed Capital and Social Capital
Answer
Fixed Capital refers to the stock of fixed assets that are used in the production process. These are typically long-term assets such as plants, equipment, and tools. For example, a manufacturing factory is considered fixed capital.
In contrast, Social Capital pertains to the assets and wealth that are owned by the community or society as a whole. This includes public resources like hospitals, parks, and roads. For instance, the local park in a community is an example of social capital.
Step 2
Savings and Investment
Answer
Savings are defined as the portion of income that is not spent. For example, if an individual's income is €100 and their spending is €80, then their savings amount to €20.
Investment, on the other hand, involves using savings to generate a financial return, typically by purchasing capital goods. An example would be a firm purchasing new machinery to increase production capacity.
Step 3
Capital Widening and Capital Deepening
Answer
Capital Widening occurs when the amount of capital per worker remains unchanged, typically due to an increase in the workforce without a corresponding increase in capital. For example, in Period 1 there might be 4 machines and 4 men, and in Period 2, there might be 8 machines and 8 men.
Conversely, Capital Deepening refers to an increase in the amount of capital available per worker, resulting in higher productivity. For instance, in Period 1 with 4 machines and 4 men, if in Period 2 there are 12 machines and 8 men, this indicates capital deepening.