Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which type of technological progress uses less labor and the same amount of capital per unit of output?

1. Capital savings

2. Neutral

3. Labour savings

4. All of the above

The correct answer is: Labour savings

The correct answer refers to labor-saving technological progress, which is characterized by reducing the amount of labor needed to produce a given level of output while maintaining the same level of capital investment. This kind of technological advancement typically involves automation or improvements in production processes that enable goods to be produced more efficiently. In labor-saving technological progress, the focus is on minimizing the reliance on human labor, thereby increasing the productivity of labor. This advancement primarily benefits firms by lowering labor costs and potentially allowing them to reallocate labor resources to more value-added tasks. Capital-saving technological progress, in contrast, would involve techniques or innovations that reduce the capital used per unit of output, without affecting labor input. Neutral technological progress leads to changes in both labor and capital efficiently, without favoring one over the other. Therefore, in the context of this question, labor-saving is distinct in its emphasis on using less labor specifically while keeping capital constant.