Question

As a country increases its per capita income, it tends to shift from producing goods that are more labor intensive to producing goods that are more capital intensive. Clearly explain why we observe this change using appropriate economic terminology.

Answer 1

ANS

As the per capita income of any economy increases then the economy shifts from producing labor intesive goods to capital intensive goods and this happens because of many reasons like the increase in per capita income leads to increase in the education level of the economy due to which they spend more on educatiion as compared to before and due to which the amount of skilled labour in the economy also increases and due to which the economy or country invests on capital intesive technique because these skilled labour can use technological production methods. The other reason is that the increase in per capita increases the it increases th epurchase power of the economy and due to which the purchase of capital efficient technology increases also according to growth model the economy also invests in innovation due to which the capital intensive production increases and the another reason is that the country's per capita income increases it leads to increase in wage rates and which leads to the shift of producers towards capital intesive production.