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Capital In The Market And Economy

Essay by   •  November 12, 2010  •  569 Words (3 Pages)  •  1,368 Views

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Capital is considered anything that helps enable us to reach our goals, while improving the efficiency of goods and services that we use or produce. Capital is one of the main attributes of improvement. Capital can be almost anything, it can be mental (such as education or training), material (such as a computer or a machine) or it can be money. Capital is invested in a good or service to increase efficiency in production, to increase output and as to increase overall consumer benefit and satisfaction. Capital is a major part of markets and the economy.

In order to keep investing capital, there are times where consumption levels need to be decreased in order to collect, or save up, more capital. When you open a savings account, the interest that you earn is actually paid by businesses that have been using your money as capital. You may have given up a monthly shopping spree to save your money. While you are saving, someone is paying interest (your capital) on the money you saved, because they have borrowed it to pay for capital investments such as land, a building, machinery, etc. in order to improve their overall production.

If we look at capital in a working environment, we see that when we increase capital goods for workers, they can be more productive. This works up to a point. The law of diminishing returns declares that a general increase in output occurs when capital goods per worker increase, but there comes a point where each increase in capital goods produces a lesser impact on output. At this point, the number of human capital (workers) needs to be increased to utilize the capital goods already in place and continue to improve efficiency. An example of this is the clichÐ"© "too many cooks in the kitchen". If you have too many cooks, you need to increase the pots and ingredients. When you increase the pots and ingredients, the

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