Question

What do economists mean when they talk about investments? Name two specific investments amazon could make. Explain why the expenditure represents an investment in the economic sense.

Answer 1

When economists talk about investments, they refer to the capital which a producer provides to his business in order to earn future profits from the same. Whenever, interest rates in an economy on loans are low, and the expected profits are higher, investment pours into the economy. It is important to know, that economists do not restrict investments to private parties only. Even the government invests money in developing infrastructure for example so as to increase revenue in the form of tax collections in the long run and better life style and income of the citizens is the desired outcome of such investments.

When we come to the company Amazon, the possible investments which it could make is to increase its warehousing capacity and reach over to developing countries wherein the e commerce business is gaining much popularity. Business runs on demand and supply as per economics and to create demand in these countries is of top priority in terms of the investment which the company can make. Second up is the investment in delivery services, wherein the quality and speed of the services can be increased and customer experience can be enhanced to ensure that customer loyalty can be retained which will bring in long term profits over investment. Another possibility is that of investing in enhancing the usability of the platform and creating a friendly experience for all categories of users to increase demand for goods and services.

In the economic sense, an expenditure by a company like Amazon, represents an investment because it is done so as to attain future profits. An expenditure by the producer towards his firm is thus considered only to be for enhancement of productivity or increasing production so as to enhance the revenue of the firm and bring in higher profit margins and beat competition in the marketplace.

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