economics question?

Question

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

Answer 1

This is the answer to your homework problem. If you use resources to produce consumer goods today, they will be bought and used up today. If you invest in capital goods, these things will be around much longer and will help by allowing companies to increase production in the future.

For example. let's use a nail factory. Say the factory uses all of its resources to produce nails. It can produce 100 nails this way. If it instead diverted some of these resource to purchasing a machine to help with productivity, it would only be able to produce 60 nails today, but the machine would allow it to produce 130 nails in all subsequent periods. So, initially, it loses 40 nails, but it gains 30 more nails every year forever. This is why individuals invest in capital goods, because they will allow the individual to consume more in the future by sacrificing some now.

Answer 2

Capital goods are man made goods like tools, machinery and new technology. Consumer goods are goods like food, cars etc. Capital goods in other words help us produce consumer goods. Therefore we may say that by producing more consumer goods now, we increase our standard of living in the short-run i.e now people live "better" lives. However if we choose to produce capital goods instead of consumer goods, we ensure that in the future we eill be able to produce more (because of better technology etc.)

Answer 3

Producing a consumer good for example a car does not affect future production.
Producing a capital good, for example a car factory does affect future production.