Regarding conventional factors of production (capital and labor) and technology a. Explain why conventional factors of...

Regarding conventional factors of production (capital and labor) and technology

a. Explain why conventional factors of production are considered rival, and hence exhibit high degrees of excludability

b. explain why technology is considered non rival, and hence exhibits low excludability

Solutions

Expert Solution

a) Rival goods are classified in economics as those goods whose consumption by one consumer prevents its consumption by other consumers or reduces the amount available for another person's consumption. Excludable goods are goods whose consumption can be restricted to those who pay for it.
So, conventional factors of production mainly labour and capital are rival goods and hence exhibit higher degree of excludability. Eg. There are two types of labour one person is more efficientand qualified than the other. A firm which can pay for the higher skilled labour would be able to acquire that person. The other firms won't be able to acquire that person's service unless they exceed the first firm's price paid for that unit of labour.
Thus making labour rival and excludable good.
Similarly if there are 4 companies which offer delivery service and there are only 3 additional trucks(capital) . So if one of the companies pays more and wants to acquire two trucks. The other companues will be left with only 1 truck option and that will also be owned by the next highest bidder . Thus making the capital good rival as well as excludable good.

b) On the other hand technology is considered non rival and less excludable.
Eg. Skype is a technology for communication used in IT industry but it's non rival and less excludable since it can be used by all the IT firms simultaneously by paying a marginal amount of money. Also it can be used for personal work without paying any amount. Use of skype technology by one person or firm doesn't hamper other person's accessibility to this technology hence technology is considered non rival and exhibits minimum
excludability

Rahul Sunny answered 1 week ago

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