A government report compares two possible policies: grants for firms that train workers and a reduction in taxes on imported luxury goods. Ministers want to...
Question 1 Report
A government report compares two possible policies: grants for firms that train workers and a reduction in taxes on imported luxury goods. Ministers want to increase the economy's long-run productive capacity.
(a) Define human capital. [1]
(b) State two ways training can improve the quality of labour. [2]
(c) Explain why investment in human capital may raise firms' profit as well as national output. [2]
Answer Details
(a) Human capital is the skills, knowledge and experience of workers. [1 mark]
(b) Training can improve the quality of labour by:
- raising workers’ skills;
- improving their knowledge.
It may also enable workers to use new technology or reduce mistakes. [2 marks]
(c) Better-skilled workers can produce more output in a given time or produce higher-quality goods. Higher productivity can lower unit costs, and higher quality can strengthen sales. Either effect can raise a firm’s profit. At the national level, the greater output contributes to a rise in GDP. [2 marks]
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