Local Community Assets
Among the other criteria for choosing between techniques of production in an under-developed economy, we may discuss (II) The Rate-of-Turnover Criterion, (h) The Surplus Rate Criterion, (c) Employment Absorption Criterion and (d) The Time Series Criterion
Rate of Turnover Criterion
be chosen on the basis of the rate of turnover, i.e., the ratio of output to capital. We have already discussed above the capital-output ratio. As explained by Prof. Norman Si Buchanan.If investment funds are limited, the wise policy, in the absence of special considerations, would be to undertake first those investments having a high value of annual product relative to the investment. That is, investment projects with a high rate of capital turnover should be given preference. In other words, capital coefficient is to be minimized in order to maximize output
The Surplus Rate Criterion
This criterion seeks to Bearnaise the per capital income at some future point of time rather than maxi misc the national income now. For this purpose, the rate of savings should be maximized so that the rats of reinvestment can be maximized. Hence, for each unit should be chosen “that alternative that will give each worker greater productive power than any other alternative.
This criterion assumes that profits are largely saved and re-invested and that wages arc largely spent on consumption. Hence, it is recommended that the capital resources should be so allocated among the alternative uses that the marginal per capital reinstatement quotient is the same in different alternatives. Tile application of the law of submarginal return will bring about an optimal utilization of scarce capital resources.
According to this criterion, capital intensive projects should be undertaken in under-developed countries even though capital is scarce because in this way output per capital will be maximized. The capital- intensive projects arc advocated also on the ground that they will provide training and experience to management and the working fork and these arc the things that the developing countries lack the most.
Ternary K Sen (1933 – ) Nobel Laureate in Economics in 1998. In a sector like agriculture, the amount of fixed capital investment is small in proportion to total inputs. Hence, factors other than capital investment may substantially change the fixed capital-output ratio. But the application of this criterion is likely to produce some undesirable social effects: It will accentuate inequalities in income and wealth in the community. because the capitalists will gain at the expense of he wage earners.
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