Question

Paraphrase this please!!

Since depreciation allowances make capital acquisitions cheaper, we expect substitution towards more capital and less labor.  

Answer 1

Depreciation is the rate at which asset's value reduces due to the passage of time due to use or abuse, wear and tear. The depreciation allowance or capital cost allowance is the depreciation rate used for income tax purpose only. The rate that can be claimed depends on the asset itself. For example, a computer software would have a higher capital cost allowance than building or furniture.

In the last centuries in developing industrialized economies, there has been a substitution of inputs for durable producer's goods from human labor. The main intensity of investment in real capital is induced by technological innovations which have increased the use of machines and tools. As a result of factor substitution price of labor has been rising in response to change in relative factor costs.