The best example of an increase in capital is:
Select one: a. The discovery of new oil reserves. b. New computer software. c. Legal immigration of computer programmers. d. Conversion of military facilities to civilian uses.
The correct answer and explanation is:
Correct Answer: b. New computer software.
Explanation (300 words):
Capital, in economic terms, refers to man-made resources used in the production of goods and services. These include tools, machinery, buildings, and technologies—not natural resources or labor. Increases in capital occur when there is growth in these productive tools, thereby enhancing the ability to produce more output.
Let’s assess each option:
- a. The discovery of new oil reserves – This is not an increase in capital. Oil is a natural resource, which falls under the category of land in economics, not capital. While it can be used to produce capital goods, the resource itself isn’t man-made.
- b. New computer software – This is an example of an increase in capital. Software is a man-made tool that improves productivity across numerous industries. It enables more efficient processes, better data management, and automation, all of which contribute to increased production capacity. Thus, software qualifies as human-made capital and its development represents a clear expansion in the capital stock.
- c. Legal immigration of computer programmers – This represents an increase in labor, not capital. While these workers may be highly skilled and improve productivity, they are part of the labor force, not the capital stock.
- d. Conversion of military facilities to civilian uses – While this might improve resource allocation, it does not necessarily increase the overall stock of capital. It is more about reallocating existing capital rather than expanding it.
Therefore, new computer software is the best example because it directly adds to the productive capacity of an economy through the creation of a new capital good. It represents a technological and capital enhancement that can be used repeatedly in production, aligning precisely with the definition of capital in economics.