Difference between labour intensive and Capital Homework Help

The use of capital intensive technology increases per capita profit or income of production unit. Labour-intensive techniques rapidly increase the supply of consumable goods which controls the danger of inflation in the economy. Labour intensive technology of production refers to the technique in which more labour per unit of output is used. On the other hand capital-intensive technology uses more capital per unit of output. Capital intensive techniques increase the productivity of workers and leads to higher wages, higher income and higher standard of living of the workers. A ‘Labour Intensive’ product requires a larger amount of human labor to bring it off.

• Labour Intensive goods and services would include food service, hospitality, public education, agriculture (to some extent…but not as it used to be 50 years ago).
• On the other hand, capital-intensive techniques should be adopted in capital goods industries and the development of infrastructure and where there is sufficient amount of capital but scarcity of labour.
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• On the other hand, the Capital Intensive Technique involves more capital and less utilization of labor.

In a capital surplus economy, there is an abundance of capital and a shortage of labor. Therefore, capital-intensive techniques are better suited to such economies. It requires less labor and more capital, which is easily available.

The developed countries having ample of capital, must adopt the capital intensive technique. The capital intensive techniques are not meant for the underdeveloped and developing countries where the shortage of capital is the biggest hindrance for the economic growth. In under-developed and developing countries, there is acute shortage of capital so using labour intensive techniques will encourage the optimum utilisation of the scarce capital in more important areas of production. Even while preparing plans, India gave more importance to capital intensive production techniques rather than labour intensive techniques.

Distinguish between labour-intensive and capital-intensive technology of production.

For example, 5 quintals, 10 quintals, or 100 quintals. This problem of ‘what to produce and in what quantities to produce is almost faced by everyone in society. Also, an economy needs to make decisions regarding whether it wants to use its scarce resources to produce consumer goods or producer goods. Also, to what extent should luxury goods be produced in comparison to producer goods?

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Merits of Capital intensive technique

capital intensive technique refers to Intensive goods and services would include food service, hospitality, public education, agriculture (to some extent…but not as it used to be 50 years ago). ‘Capital Intensive’ industries require a greater amount of machinery to produce the product. Telecommunications, airlines, automobile manufacturing, oil production to name a few.

Though the underdeveloped countries have abundant natural resources but due to scarcity of capital these countries are facing the basic problem that how best to utilise the available resources in order to accelerate the growth rate. The above figure shows the impact of capital intensive technology. Here OK amount of capital and OL amount of labour produces the output level denoted by isoquant IQ. Therefore, the capital-intensive technique is suitable for a capital surplus economy where capital is abundant, and labor is scarce. It helps to produce goods and services efficiently and maximize profits. For example, if Rita has a piece of land, she needs to think about what crop she should produce on her land.

Choice of Techniques – LKLKLKLKLKLKLKLK

Also, the economy may be faced with the question of how many civilian goods and defense goods need to be produced. The problem of what to produce and in what quantities to be produced can be solved by a government that retains the authority to allocate resources in different areas of production. Alternatively, it can be solved based on the preferences of people in an economy and on the price of goods and services available in the market. Labour intensive techniques should be adopted in agriculture and consumer goods industries where larger number of workers are available.

Let us consider that she can grow either Jowar or wheat. Given that the natural resource i.e. land is limited, she needs to choose whether she wants to use the land to produce Jowar or wheat or both. Once Rita has taken the decision regarding the goods to be produced, she needs to think about the quantity of the crop that she would like to produce.

On the other hand, capital-intensive techniques should be adopted in capital goods industries and the development of infrastructure and where there is sufficient amount of capital but scarcity of labour. The production technique that makes more use of capital rather than labour for producing goods and services is called capital intensive production technique. The use of Capital intensive technology increases the initial cost of production because it requires huge investment on imports.

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On the other hand, the Capital Intensive Technique involves more capital and less utilization of labor. For instance, footwear can be manufactured either in factories where a large portion of manufacturing is carried out by machines or by skilled teams of cobblers. These are known as central problems because every society has to face them and look for its solutions. Let us understand these three central problems in detail. Unskilled and inefficient labour and therefore, it is costly in the real sense.

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Small scale industries are highly.

This technique helps to produce goods and services at a large scale, which can be sold in the market for higher profits. In under-developed and developing countries, the wage-rate per unit labour is very low in comparison to developed countries. Under this type of economy, using labour intensive technique provides more production at cheaper rates. Railway, irrigation, roads, construction, public sector, etc. all use capital intensive techniques of production.

Hence, considerations regarding the socio-economic conditions of a country or market are highly pertinent to this problem. The solution to the problem of how to produce is based on the amount of quantity that needs to be produced for a given level of resources. At the same time, the cost of using a technique to produce goods is equally very important. A producer will use that particular technology which is available at minimum cost. Under the labour-intensive technique though the wage rate is low, but the productivity of labour being low, unskilled and inefficient labour and therefore, it is costly in the real sense. The higher the isoquant IQ1 shows larger output which produced by using OK1 amount of capital and OL amount of labour.

In such a technique, the cost of machinery and equipment is high, and the cost of labor is low. Therefore, it is better suited for capital surplus economies. Inflation is a situation of sustained increase in the general price level of goods and services. In such a situation, the working capital required to maintain a normal level of production and sale also increases. Inflation leads to increase in the cost of raw material, rise in wage rate, and rise in all other expenses and thus lead to a need for more working capital. The working capital requirement of a business thus, become higher with higher rate of inflation.

Distinguish between labour-intensive and capital-intensive technology of production. Without proper skill and basic facilities a country can not apply capital intensive technology. The use of Capital intensive techniques will create larger employment opportunity in the long run. One of the most crucial problems of the economy is to decide which commodities shall be produced for which sections of society. For instance, essential goods and services are in demand from all sections of society, but only certain sections of society have a demand for luxury commodities. At the same time, choices of goods and services rest on prevalent tastes and preferences in an economy.

This technique is also known as labour saving technique. Interviewmania is the world’s largest collection of interview and aptitude questions and provides a comprehensive guide to students appearing for placements in India’s most coveted companies. Lastly, it is important to know that other than resource allocation, central problems of an economy have two more aspects – efficient utilization of the resource and development of resources. Thus, to explain the central problems of an economy, one needs to delve into its core, i.e. choices concerning the limited resources available to maximize socio-economic utility. Now, the question is what type of techniques should be followed to develop the economy properly.

• This technique is also known as labour saving technique.
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• Such a technique helps to produce goods and services efficiently, which reduces the cost of production and increases profitability.
• With the help of Capital intensive technology a country can develop its socio-economic overhead facilities rapidly.

According to Gerstenberg, Capital structure refers to “the makeup of a firm’s capitalisation”. It is the proportion of a company’s capital, financed through owners and borrowed funds. In other words, it represents the mix of long-term funds such as equity shares, preference shares, long-term loans, retained earnings etc., in the total capitalisation of a firm. Download the PDF Question Papers Free for off line practice and view the Solutions online.

Even in industries in order to increase productivity and to remain hassle free from labour problems industrialists adopt such policies and practices where in work can be done with minimal labour. How does ‘Inflation’ affect the working capital requirements of a company? Difference between labour intensive and Capital intensive..

Rate of capital formation also increases by using capital intensive technique. Since the cost of production reduces, quality of produced goods improved causing more demand resulting in higher profit, more saving and higher investment and higher rate of capital formation. In such a condition India should have adopted labour intensive production techniques to grovide employment at a large scale.