Labour & Capital-intensive Production (Cambridge (CIE) IGCSE Economics)
Revision Note
Written by: Steve Vorster
Reviewed by: Jenna Quinn
The Distinction Between Capital- and Labour-intensive Production
A firm’s production can be either labour-intensive or capital-intensive
Labour-intensive means that the proportion of labour costs are higher than the other factors of production, including machinery
Capital-intensive means that the proportion of machinery costs are higher than any of the other factors of production, including labour
Choosing Between Capital- and Labour-intensive
When considering how to produce goods/services most efficiently, firms will consider the nature of their good/service and the advantages and disadvantages of capital/labour intensive production
Some industries require labour-intensive production and hire many workers
This often occurs when jobs require technical skills which are difficult/expensive to automate e.g. teachers in a school or garment workers in a clothing factory
The Advantages and Disadvantages of Labour-Intensive Production
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Other industries are more capital-intensive or are gradually replacing labour with capital when it makes financial sense to do so - as wages rise in a country more labour will be replaced by capital (machinery)
Constant improvements to technology and process innovation mean that firms are constantly evaluating the possibilities of moving from labour to capital-intensive production
The Advantages and Disadvantages of Capital-Intensive Production
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