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Question
What are the differences between MEC and MEI.
Distinguish Between
Solution
| Sr No | Marginal Efficiency of capital |
Marginal Efficiency of Investment |
| 1 | It is based on a given supply price of capital | It is based on the induced change in the price due to a change in the demand for capital |
| 2 | It represents the rate of return on all successive units of capital without regard to existing capital | It shows the rate of return on just those units of capital over and above the existing capital stock |
| 3 | The capital stock is taken on the X-axis of the diagram | The amount of investment is taken on the Y-axis of the diagram |
| 4 | It is a “stock” concept | It is a “flow” concept |
| 5 | It determines the optimum capital stock in an economy at each level of interest rate | It determines the net investment of the economy at each interest rate given the capital stock. |
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Investment Function
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