Introduction to Business EconomicsMTP May 20Question 570 of 209
All Questions

Capital Intensive technique would get chosen in a

Options

Alabour surplus economy where the relative price of capital is lower.
Bcapital surplus economy where the relative price of capital is lower
Cdeveloped economy where technology is better.
Ddeveloping economy where technology is poor.
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Correct Answer

✅ Option b — capital surplus economy where the relative price of capital is lower

All Options:

  • Alabour surplus economy where the relative price of capital is lower.
  • Bcapital surplus economy where the relative price of capital is lower
  • Cdeveloped economy where technology is better.
  • Ddeveloping economy where technology is poor.

Detailed Solution & Explanation

• A capital-intensive technique means using more capital (like machinery) and less labour in production. Firms choose production techniques based on the relative prices and availability of factors of production (capital and labour). • In a capital surplus economy, there is an abundance of capital. This abundance naturally drives down the relative price of capital compared to labour. When capital is relatively cheaper, it becomes more cost-effective for businesses to employ capital-intensive methods of production. This aligns with the principle of factor substitution, where firms substitute away from relatively expensive factors towards relatively cheaper ones to minimize costs and maximize profits. • Therefore, a capital-intensive technique would be chosen in a capital surplus economy where the relative price of capital is lower. This is option (B). • Option (A) is incorrect because a labour surplus economy implies an abundance of labour, making labour relatively cheaper. In such an economy, firms would likely choose labour-intensive techniques, not capital-intensive ones, to take advantage of the lower cost of labour. • Options (C) and (D) are incorrect because while technology and economic development play a role in the *types* of techniques available, the *choice* between capital-intensive and labour-intensive techniques is primarily driven by the relative prices and availability of capital and labour in that specific economy, not just the general level of technology or development.

About This Chapter: Introduction to Business Economics

Paper

Paper 4: Business Economics

Weightage

5%

Key Topics

Meaning, Scope, Price Mechanism

This chapter lays the groundwork for understanding Business Economics as a discipline. It covers the meaning, scope, and nature of economics — including key distinctions like Microeconomics vs Macroeconomics, Positive vs Normative economics, and the fundamental economic problem of scarcity. Students learn how businesses use economic principles for decision-making in a competitive marketplace.

View Official ICAI Syllabus

Exam Strategy Tip

Focus on definitions and distinctions between concepts. Questions often test whether you understand the difference between Micro and Macro, or Positive and Normative statements.

Related Comparison Tables

Microeconomics vs Macroeconomics: The Complete CA Foundation GuidePositive vs Normative Economics: Fact vs Opinion

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