Introduction to Business EconomicsMODULEQuestion 571 of 209
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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 involves using more capital (machinery, equipment) relative to labour in the production process. • This choice is primarily driven by the relative cost and availability of factors of production. Firms aim to minimize costs and maximize efficiency. • Option (B) is correct because in a capital surplus economy, there is an abundance of capital. This abundance typically leads to a lower relative price of capital (e.g., lower interest rates for borrowing, cheaper machinery). When capital is cheaper and readily available, firms are incentivized to use more of it, thus adopting capital-intensive techniques. This aligns with the economic principle of factor substitution, where firms substitute away from relatively expensive factors towards relatively cheaper ones. • Option (A) is incorrect. In a labour surplus economy, labour is abundant and likely cheaper. Therefore, firms would typically choose labour-intensive techniques to take advantage of the lower cost of labour, not capital-intensive ones, even if capital's relative price is lower. The primary driver in a labour surplus economy would be to utilize the abundant labour. • Option (C) is incorrect because while developed economies often have better technology and are capital-intensive, the fundamental reason for choosing a capital-intensive technique is the relative price and availability of capital, not just the existence of better technology. Better technology might enable capital-intensive methods, but the economic decision to adopt them hinges on the cost of capital.

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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