Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What type of technological progress involves technical advances that require labor and capital in the same proportions as before?

1. Capital savings

2. Neutral

3. Labour savings

4. None of the above

The correct answer is: Neutral

Neutral technological progress refers to advancements that maintain the same ratio of labor and capital input in the production process. This means that while the technology has improved, there isn't a significant change in how labor and capital are combined to produce goods or services. As a result, both labor and capital continue to be essential in equal proportions, which allows for the efficient utilization of resources without favoring one over the other. In the context of economic production, neutral technological progress is crucial because it facilitates growth while maintaining the existing balance of inputs. This type of progress can help firms increase their output without altering the fundamental input structure, enabling them to respond effectively to changes in demand or market conditions. Other options present different scenarios. Capital savings technological progress would imply a shift in favor of capital, meaning less labor would be required for the same output. Labor savings would suggest that technological advancements reduce the need for labor relative to capital, altering the input ratio in favor of capital. Neither of these scenarios aligns with the definition of neutral technological progress, which is specifically characterized by unchanged proportions of labor and capital.