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2021 NECO ECONOMICS ANSWERS
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Capital formation is a term used to describe the net capital accumulation during an accounting period for a particular country
(i) Low level of Natural income and per capital income; The root cause of capital deficiency in under-developed countries is low level of real national and per capita income which limits to the motives of savings and investments. Due to lack of desired investments, capital formation has no increase. Hence, due to low production, there is low national and per capita income and, in turn, this forces to low capital formation.
(ii) Lack in demand of capital; Another cause of low rate of capital formation in under-developed countries in lack of demand of capital. In the words of Prof. Nurkse, “Low productivity in under-developed countries, people have low real income and, thus, purchasing power is low and so due to low demand.
(iii) Lack in supply of capital;Like demand of capital, lack of supply of capital is responsible for low capital formation. However, due to lack of necessary supply of capital in under-developed countries, the process of capital formation is not boosted up. As a result, capital formation remains at low level.
(iv) Lack of Economic and social overheads; Basic overheads like roads, buildings, communication, education, water, health etc. are generally lacked in under-developed countries which react as improper atmosphere for the capital formation and slow process of capital formation.
(v) Lack of skilled entrepreneurs;Able and efficient entrepreneurs are not available in under-developed countries. It is the only reason for low rate of capital formation. Due to absence of risk-taking entrepreneurs, establishment of industries and expansion is quite limited and industrial diversification is not carried out and no balanced development of economy is possible.
(vi) Lack of effective fiscal policy;Lack of effective fiscal policy or financial policy in under-developed countries also retard capital formation to some extent. Burden of taxation is too much which is out of people’s capacity to bear as their income is quite low. Besides, inflationary circumstances accrue and prices soar extremely high.
A wholesaler is a person whose business is buying large quantities of goods and selling them in smaller amounts
(i)High price: Middlemen cause high price of goods by adding cost to the cost of goods
(ii) Increase in advertisement: The introduction of middlemen in the chain of distribution leads to high cost of creating awareness to the customer
(iii) Low profit: Middlemen will reduce the profit of the producer by increasing the cost of production for the producer
(iv) Decrease in production: Middlemen will lead to decrease in production of goods that will affect the price of the goods
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