Essay

The choice between investing in capital goods and producing consumer goods now affects the ability of an economy to produce in the future.

It is necessary for an economy to make choices as there are limited resources for production to meet the unlimited want of the people to produce the best combination that’s suits the need of the economy. In this case, economy has to make choices in investing in both capitals goods and producing consumer goods that affect the ability of an economy to produce in the future. One example of such economy is Economy of China.

Capital goods are goods that are man-made aid to production. These goods are produced not for final consumption. Capital goods are important to economy because it is needed to produce goods. Capital goods also brings efficiency in production of goods as it reduces the need to have high number of manpower to do a certain job. Some examples of business producing capitals goods are Boeing – Production of Airplanes, Caterpillar Inc– production of bulldozer. We can see from the BBC article regarding the China economy, "Capital spending on buildings, factories, infrastructure and other physical assets made the biggest contribution to China's growth (54%)"."This investment-heavy expansion arrested a tentative trend towards consumption-led growth" This shows how capital goods is important for economic growth through the improvement of the ability to produce goods. However, an economy cannot solely invest all resources into production of capital goods. When all resources are put into production of capital goods, there would be no resources available for the production of goods. This would cause lower standard of living of the people as there is no consumer available to purchase with the money they have earned.

Consumer goods are goods that are produced for final consumption. Consumer goods are important as it increase the standard of living of the people in the country by providing comfort and lifestyle choices for people. By having consumer goods, people in the country would be motivated to work harder for the things they would like to have. With people working harder, this improves the production of goods quantity and quality. Also, with the production of consumers goods, economy can sells it of to other country to earn more money to obtain more resources for the production of even more goods. We can see from the same BBC article, " For the first time since 1961, China's production of services (which include transport, wholesaling, retailing, hotel, finance, real estate and scientific research, among other things) exceeded its industrial output", "The income earned from all this production". This shows how important is consumers goods production toward the economy, which provides revenue for the country to obtain more money to buy more resources for production/services. However, an economy cannot produce solely consumer goods only as the economy would not be able to produce goods efficiently due to the lack of capital goods to aid the production of goods. This results in the drop of production of consumer goods, causing the standard of living to drop in a long run.

Thus, choices have to be made in deciding on what to produce to benefit the economy production of goods for the future in a long run. With reference to BBC article on China economy, "The economy's growth was, however, substantially slower than the expansion of credit, adding to worries about financial fragility and potential defaults" shows that the need to decide on producing consumer and capital goods is very crucial as it could affect a country economy, especially in the areas of production. While in the BBC GSCE Bitesize, " What causes economic boom", we can see that in US, people would mass produce capital goods( factories), which drives the production of goods to a higher level. The choice of the government of producing more capital goods first than production of goods allows the country's economic to boom. From this, we can see how important choice is needed when deciding and what to produce. By using the PPC graph, we can see that as we are producing lesser capital goods, we are producing more consumer goods. The choices required are to find a point on the curve that suits the economic production needs. If there is advance technology, this means we may require less of capital goods as less capital goods is required to produce more of the consumer goods. (i.e Point A) If the economy requires a high amount of consumer goods, the economy may have to decide to allocate more resources into capital goods as more man-made aid are required to produce enough consumer goods to meet the demands of the people. (i.e Point B) Hence, the choices between investing in capital goods and consumer goods would determine the ability an economic can produce in the future.

Fig. 1

In conclusion, in every economy, it is crucial to have both capital goods and consumers’ goods to be produced as both of these resources affect the production of quality and quantity of goods. There is no economy that could sustain with only one type of goods if the country wants to achieve economic growth.