What is depreciation in economics with example

Concept in economics

Further information on Economic depreciation: Fixed capital § Economic depreciation

In economics, depreciation is the gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.

If the capital stock is in one period , gross (total) investment spending on newly produced capital is and depreciation is , the capital stock in the next period, , is . The net increment to the capital stock is the difference between gross investment and depreciation, and is called net investment.

Straight line method of depreciation formula

Models

In economics, the value of a capital asset may be modeled as the present value of the flow of services the asset will generate in future, appropriately adjusted for uncertainty. Economic depreciation over a given period is the reduction in the remaining value of future goods and services.

Under certain circumstances, such as an unanticipated increase in the price of the services

how to find depreciation macroeconomics

what is depreciation in macroeconomics