Most people tend to think that Marginal Efficiency of Capital (MEC) and Marginal Efficiency of Investment (MEI) are all but the same thing. However, this is not really the case since there are numerous differences that exist between these two. MEC is the rate of discount that tends to make the discounted present value of expected income stream equal to the cost of capital. On the other hand, MEI is simply the expected rate of return on investment as additional units of investment are made under specific conditions. In this post, we are going to examine some of the differences that exist between MEC and MEI.
- What They Represent
One of the biggest things that differentiates MEC and MEI is what they represent. Well, Marginal Efficiency of Capital represents the rate of return on all successive unit of capital without necessarily having to regard the existing capital. This is quite different from MEI, which shows the rate of return on units of capital over and above the existing capital stock. With MEC, the investment is influenced by marginal efficiency in capital together with the interest rate. However, things are quite different with MEC liquidity trap since investment may not be responsive to lower Domino CEME online interest rates.
Marginal Efficiency of Investment is a “flow” concept where the amount of investment is taken on the horizontal axis of diagram. Furthermore, MEI is based on the induced change in the price due to a shift in the demand of capital. On the other hand, MEC is a “stock” concept and its capital stock is taken on the horizontal axis of diagram. This means it is based on a given supply price for capital. However, they are both affected by changes in technology,as is the case with CEME game, which is now taking place online.
- What They Determine
Finally yet importantly is what they both determine. MEC tends to determine the optimum capital stock in a given economy at each level of interest rate. This is mostly the case with the Keynesian theory since interest rate is a very important factor. However, when it comes to the liquidity trap, the interest rates might not be responsive to game CEME online. Actually, at the same interest rates, more investment projects tend to be demanded. This leads to an improvement in the economic conditions thus encouraging companies to invest in the best online CEME. This is different with MEI as it determines the net investment of the economy at each interest rate given the capital stock.
The Bottom Line
MEC and MEI are two different things even though many people perceive them to be the same. With the above differences, you will be able to tell whether you are dealing with MEC and MEI. For those who still find it hard in telling the difference, then you can simply seek the help of experts or go through online guides.