Question

please explain in details

What are diminishing returns to capital?

a)

Poor education leads to a decline in human capital.

b)

Rapid increase in population reduces human capital.

c)

Increasing the stock of capital leads to falls in the level of productivity.

d)

Increasing the stock of capital leads to increases in productivity at a decreasing

rate.

When the government makes cost of living adjustments to social security checks,

a)

there may not be enough of an increase for medical care costs.

b)

there may be too much of an increase for medical care costs.

c)

the increase exactly covers medical care costs.

d)the dollar amount of the social security check does not change.

The State of California increases the amount of food stamps (welfare) it provides to

disadvantaged residents in 2011.

a)

US 2011 GDP rises.

b)

US 2011 Government Spending rises.

c)

both a) and b) are correct.

d)

neither a) nor b) are correct.

Answer 1

Please explain in details:

a)Diminishing returns to capital: Diminishing returns to capital may be defined as the phenomenon where there is a marginal decrease in the output of a production process as the amount of a single factor of production is increased incrementally whereas all the other factors of production are held constant. Basically the law of diminishing returns implies that adding more and more factors of production may lead to an increase in the output In the initial stages but as time goes on and more of a single factor of production is increased ( for example labor) eventually the output would show a downward trend.

b)Poor education leads to a decline in human capital: Human Capital refers to the skills, education and training of individuals living in a society which makes them capable of performing a certain task and helping in the growth of the society as a whole. It is capital because these skills or education are an integral part of us that is long-lasting, in the way a machine, plant, or factory lasts.

Education provides the basic skill and knowledge in the making of an effective and efficient human capital thus when proper education is not provided it makes the person ineffective and inefficient to perform any kind of task properly. Recently the co-founder of Infosys rightly pointed out that 80-85% of youngsters are not properly trained for any job and this is because of rote learning, thus this goes on to solidify the point that poor education leads to a decline in human capital.

c) Rapid increase in population reduces human capital: Increase in population leads to a reduction in the amount of resources available for the population as a result too many people compete for the too less resources available. If we see this with respect to the demand and supply method, when the population increases the demand increases whereas the supply is not enough to keep up with the increasing demand thus the prices of all the commodities and services increases rapidly. Due to the increase in demand and prices the lower income groups of the society are not able to keep up their purchasing power and as a result they have to go for cheaper or second grade products and poor education as well.

Thus lack of proper food, health, education and skills due to increased competition and prices which are a result of boom in population leads to the reduction of human capital.

d) Increasing the stock of capital leads to falls in the level of productivity: As the level of capital stock increase the level of productivity tends to decrease because less real production is supplied at the same level and more of it is remaining idle in the factory or the warehouse.

• Increasing the stock of capital leads to increases in productivity at a decreasing rate: As the level of stock of capital increase the productivity increase initially but as the level of stock is kept on increasing the productivity starts increasing at a diminishing rate the reason for this is because less real production is supplied at the same level and more of it is remaining idle in the factory or the warehouse

• When the government makes cost of living adjustments to social security checks: c) the increase exactly covers medical care costs.

• The State of California increases the amount of food stamps (welfare) it provides to disadvantaged residents in 2011: Option C – Both US 2011 GDP as well as Government spending rises.