Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 25 - Part IX - Production and Growth - Problems and Applications - Page 546: 4

Answer

The opportunity cost of investing in capital is increased consumption or increased savings. A country can over-invest in capital, and what will happen is that consumption and government spending will both decrease. In turn, the increased investment in capital may slow the the growth in consumption and government spending for some time. Also, one possibility is that of diminishing returns on the capital.

Work Step by Step

The opportunity cost of investing in human capital is increased consumption or government spending. A country might be able to over-invest in human capital. If more humans are trained to do a certain job, and there is no increase in the demand for the job, then the excess supply of the workers would decrease the wages for that job.
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