The Concept of Economic Efficiency 39 



the amount of investment for the total economy. If there is an 

 increase in investment opportunities, the demand for funds will 

 increase. This will be represented by a shift to the right of the 

 schedule of the marginal efficiency of investment, accompanied by 

 an increase in the rate of interest. An increase in the propensity 



Savings and Investment 



FIGURE 11. Supply and Demand Curves in the Market for Invest- 

 ment Funds 



to save, on the other hand, will lower the saving schedule and will 

 result in a decline in the rate of interest. 



The competitive capital market assures that the community's 

 savings are made available to those enterprises which have the most 

 attractive investment opportunities, by permitting them to bid up 

 the price of capital and thus to command the use of it. Accord- 

 ingly, the capital is channeled into those areas where it will produce 

 the highest return. In this manner, the capital market so allocates 

 investment funds that no further gain can be achieved through any 

 reallocation. 



From the saver's point of view, a return is received on his savings 



