Capital - class-XI

Private capital refers to that capital which is invested in the private sector or by people privately. This capital is used to generate income for the people operating in the private sector.

National capital is the total capital in the country. It includes all the public capital as well as the privately owned capital in the economy.

Production capital refers to that capital which is associated with the production mechanism directly. It is used in the process of production in the physical form, i.e, in the form of machines, tools, etc.

Capital obtained from foreign sources and invested domestically is classified as external capital, as opposed to internal capital generated within the country.

Consumption capital is the money set aside for daily consumption purposes.

The capital obtained for investment purposes is obtained from an said international group. 

Collective capital is the capital owned by a group of people or a business, which is run by a group or family. In this case, all the people of the group or family collectively use the benefits derived from the utilization of that capital.

Capital is used to produce goods and services and hence is important efficient growth of an economy. 

Efficiency of labour is directly proportional to the supply of capital in an economy, thus supply of capital is increased or decreased by the efforts of man accordingly.

According to economic theory, higher income levels generally provide individuals with a greater surplus after meeting basic needs, which increases their capacity to save.

Capital helps to improve the production,that is ,the action of transforming things from raw materials to finished products.It also helps in increasing the productivity,that is,the ability to produce things in a more efficient and effective manner.

Capital is a passive factor of production thus it is not the core of economic development. Economic development of a country depends on several factors including capital.

Capital is man-made and not a free gift of nature. For example, machinery.

Western countries have high per capita income and thus they have higher savings and investment in their respective economy.

Public capital refers to the productive assets owned by the government. 

Several arms and ammunition is necessary to maintain the defence of the country, which is made with the help of capital such as machines, tools etc.Thus capital helps in maintaining the defence of the country.

When an economy provides more opportunities to save then people save more, thus in turn investment and rate of capital formation rise.

Low per capita income limits the ability of individuals to save, which in turn reduces the pool of funds available for investment and capital formation.

Even when the income of person is high , he is left with less real income after paying the high taxes levied by the government this then affects both the level of consumption and savings of the person.

When high rate of taxes (income tax and sales tax)  are imposed by the government ,the real income of the consumers go down and hence the purchasing power falls so in turn savings of the people falls accordingly.

During boom market condition, the economy flourishes,investment rises and thus capital formation rises and during depression period , market sinks down and rate of capital formation falls.

Higher income and low taxation  causes the people to save more ,and thus investment rises which in turn leads to higher rate of capital formation.

The prosperity of a country helps to provide the citizens with more investment channels and thus people tend to save more but during depression period of an economy ,market sinks down and falls into a low -equilibrium trap which results in less investment,less savings and low rate of capital formation.

Insufficient options to invest in an economy results in low net capital accumulation during a period of time in an economy since the people of that economy is left with very few options to invest.

Plant and machinery are Producers goods. Together with stocks and work in progress, these goods are collectively termed 'Capital'.

Capital formation means the net accumulation of stock in a country during a particular accounting period.

Capital is used as a factor of production in economics as it helps in production process and helps to increase the productivity.

Interest is known as the cost of capital as a factor of production.For instance, when we keep a certain amount in bank,we get some extra money with the principle amount .This extra amount is known as interest.

Buildings,machinery,other equipment used in production process -all are regarded as capital in economics as these are fixed assets and helps to increase productivity in an economy.

Machines are the capital goods as machines are used in producing other goods ,rather than being bought by consumers.

Money invested to run an organization and fixed assets like tools,machines,and equipment- both are termed as 'capital' in economics as both help the production process to improve.

Addition to the existing stock of capital leads to increase in investment and capital formation in an economy.

Social overhead capital includes all the 'basic' services required in the production process such as,transport,irrigation,energy,education,health and medical facilities.

Over the years the rate of accumulation of net capital during a particualar accounting period has increased as the skill and knowledge of labour are increasing day by day ,which in turn is increasing the productive capacity of an economy.

Capital  as a factor of production,possess great mobility as it can be transferred from one place to another instantly.

Capital, as a factor of production, includes both assets like machines, equipment, etc and money-which are important to maintain the smooth functioning of the production process.

Capital refers to man-made goods used in the production process. Forests are considered natural resources or land, not man-made capital.

Plant and machinery are classic examples of man-made capital goods used to produce other goods and services, whereas land, water, and air are natural resources.

Units of capital employed to produce a certain level of output divided by total units of output gives us the capital output ratio. It is measured in order to check the efficiency and effectiveness of an organization.

Raw materials and money in hand are called working capital. Unlike tools, machines and buildings, these are used up in production. 

Fixed capital is a one-time investment made at the early stages of a business. The fixed capital investment is made to cater the long term needs of a business. 

Raw materials and money in hand are called working capital.

Fixed capital refers to investment in
long-term assets. Management of fixed
capital involves the allocation of the firm’s
capital to different projects
or assets with long-term implications for
the business. For example, tools, machines, buildings, etc. which can be used in production over many years. 

Working capital  is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital equals to current assets. Working capital is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

Human capital belongs to that person itself, it cannot be delegated or transferred from one person to another. It is an individual's effort and potential talent coinciding with the availability of proper opportunity which helps them to earn income.

Capital goods are generally a long term investment as it is used to produce many different products. 

Individual capital refers to the capital owned by one person/individual. Summation of all the individual capital in an economy is termed as the national capital, which determines the status of an economy.

Capital is an indispensable factor of production as it supervises other factors of production,Also it is the human capital which makes the profit possible.

Remunerative capital refers to the payment made to the workers for their contribution to production. It is a capital provided to workers in the form of wages. E.g. salaries, wages, allowance for food etc.

Sunk capital refers to assets that are specific to a particular use and cannot be easily repurposed or recovered. A textile weaving machine is designed for a specific production process, making it a classic example of sunk capital.

Capital assets lose value over time due to wear and tear, obsolescence, or usage. This reduction in value is known as depreciation.

Capital gets circulated and all results into the finished products as capital holds enough significance in the functional relationship between inputs and outputs produced in an economy during a given period of time.

LAbour has the highest mobility, hence migrating from one place to another is very common.

Capital has a large set of effects and is generally used for multiple purposes. 

Fixed capital refers to durable producer goods, such as machinery or buildings, that are used repeatedly in the production process over a long period. Unlike circulating capital, they do not change their form during production.

Individual saving is influenced by the ability to save (income level), the willingness to save (psychological factors), and the opportunity to save (availability of banking or investment channels). Therefore, all these factors contribute to the total saving.

The rate of capital formation is the ratio between (the increase in fixed capital and inventories) and (the total value of good produced and services provided in a country during one year).

This statement is true as persons feel demotivated to work hard in order to earn more as because the real income after paying the increased income tax is much less despite the hard work of the individuals .Therefore the willingness to save is also less as the willingness to earn more is less.

Peace and financial security in the economy is necessary to create an environment where the general public experiences an opportunity to save. Moreover, there is a need for favorable political inducement by the government through its policies to motivate people to save.

Capital formation requires incentivizing savings and ensuring a stable environment for investment. Tax reliefs, structured saving schemes, and a secure legal environment all promote the accumulation of capital.

From an economic perspective, savings are the portion of income not consumed by individuals. While banks and markets facilitate the process, the act of saving originates with the individual.

The economy falls into a growth cycle-more savings lead to more investment, thus large capital availability in an economy, which will further lead to the upliftment of an economy. Prof. Marshal remarked this thought.

Developed nations like the U.S.A., U.K., and Japan have historically relied on advanced machinery and technology to achieve high levels of industrial production and economic growth.

It is calculated in order to make the future prediction and to check the efficiency of the return which the investors will receive when they will invest in that new investment opportunity.It is extremely important in order to draw more shareholders in the financial market.

Capital-output ratio is measured by calculating the proportion of capital investment needed to produce one unit of output. Capital-output ratio helps to determine the productivity of the economy.

It is the amount of capital needed to produce one unit of output.

In short run period(which generally means period within 1 year)capital remains fixed as capital formation needs high investment and moreover in short run even when the output is zero some fixed cost is incurred by the firm due to capital .

The economy has to decide about technique of production on the basis of
cost of labour and capital. A labour surplus economy choose labour
intensive techniques and a capital surplus economy choose capital -
intensive technique.

Capital is that wealth which is used in the production of goods and services in an economy: capital and human resource have an integrated  relationship:capital has to withstand wear ,pressure, damage etc.MOBILISATION OF SAVINGS is the odd one as it is not a feature of capital

Floating capital can be used for many purposes or by several industries. It is a part of capital that is invested in current assets of the organization, like raw materials.

Floating capital refers to the raw material part of the capital also known as working capital which can be used in many ways in the factory. Therefore, leather in a shoe factory is a floating capital.

Machines and tools are fixed capital  they are fixed assets(assets which are purchased for long term use and are not likely to be converted quickly into cash)

Working capital refers to those goods which are used to run the day-to-day activities in an organization. Thus stocks of raw materials and wage bills comprise the working capital.

Capital is the overall investment that is done in the business which is used either in the form of money or converted into assets, like tools, machines and equipment which are used productively to yield output.

Entrepreneurs with ideas but lacking capital seek funds through the 'venture capital funds', In the RBI's classification such funds fall under Alternative Investment Funds (AIFs).

Capital is a part of wealth which can be utilized for supplementary production of wealth. Hence, all money/wealth is not said to be capital, but only that which is engrossed in generation of more income.
Law of demand has certain exceptions. While, Robbins defined economics under the scarcity approach.

Wealth includes all goods that have value and are scarce, while capital is a subset of wealth used for further production. Therefore, all capital is wealth, but not all wealth is capital. The statement provided is the reverse of this definition, making it false.

Wealth is defined as anything that has value and can be owned. Even if a resource is lying idle, it still possesses value and constitutes wealth, though it is not currently functioning as capital.

Capital is a specific type of wealth used to produce more goods or services. Since all capital must be wealth, but not all wealth (like consumer goods) is used for production, the statement is true.

Capital is defined as a factor of production that is used to create more wealth or generate income. Both options (a) and (b) describe the functional purpose of capital.

Capital formation is the process of increasing the stock of real capital, such as machinery, equipment, and infrastructure, within an economy.

Capital is not a natural resource; it is created by human effort to be used in further production, which is why it is called a produced means of production.

Tools and accessories are man-made aids used in the production process, which classifies them as capital.

A resource used for generating revenue is both wealth (because it has value) and capital (because it is used in production).

Capital is a stock concept (measured at a point in time), but the income generated by that capital is a flow concept (measured over a period of time).

Capital is created by human labor acting upon natural resources. It is neither a free gift of nature nor produced by man alone without raw materials.

Capital is classified as a produced means of production because it is created by humans to facilitate further production, unlike land which is an original or primary factor.

Capital formation is essential for both maintaining existing productive capacity (replacement/renovation) and expanding it (additional capacity).

Capital is measured as a quantity existing at a specific point in time, which makes it a stock concept.

Capital formation requires saving, which means reducing current consumption to invest in future productive capacity. This is a trade-off between present and future.

An increase in the stock of capital goods, which are used for the production of consumer goods, will lead to increased production of consumer goods and enhance the future production output.

Capital formation requires both the willingness to save (sacrificing current consumption) and the actual act of saving income, which is then channeled into investment.

If an economy consumes everything it produces, there is no surplus left for investment. Without investment, there is no capital formation, and the economy cannot grow.

Capital formation is only possible if resources are diverted from producing consumer goods to producing capital goods, which requires a reduction in present consumption.

Capital formation involves the accumulation of assets that increase an economy's productive capacity. This process facilitates higher production efficiency, future output growth, and overall economic development.

The ability to save is fundamentally tied to the level of income available to individuals and how that income is distributed across the population. Higher income levels generally allow for more savings, and equitable distribution patterns influence the aggregate propensity to save.

Savings in an economy are generated by various sectors, including households, business enterprises (retained earnings), and the government (budgetary surpluses). All these sectors contribute to the pool of funds available for capital formation.

Government savings are derived from the difference between its revenue and its consumption expenditure. Revenue sources include tax collections, fees, and the profits generated by public sector undertakings (PSUs).

Capital formation is a multi-stage process that begins with the creation of savings, requires the mobilization of these savings through financial intermediaries, and culminates in the actual investment of those funds into productive real capital assets.

Real capital formation requires a conducive environment that includes risk-taking entrepreneurs, supportive government policies, and economic incentives like the potential for profit to encourage investment.

The decision to invest is primarily driven by the expected return on the investment (prospective rate of profit) compared to the cost of borrowing the funds (rate of interest).

In the pre-1991 era, India followed a policy of import substitution. Import permissions were strictly regulated and prioritized for essential capital goods and machinery needed for industrialization, rather than consumer goods.

The standard Cobb-Douglas production function is often written as Y = A * K^alpha * L^(1-alpha). In many empirical applications, the output elasticity of capital (alpha) is estimated to be around 1/4 (0.25) and labor (1-alpha) around 3/4 (0.75).

During the pre-reform period, the import regime was highly restrictive. Permissions were granted primarily for essential inputs required for domestic industrial production, which included capital equipment, machinery, and raw materials, while restricting consumer goods.

Historically, India has faced challenges in achieving high rates of gross capital formation compared to rapidly growing economies, often citing it as a constraint on faster GDP growth.

Floating capital (also known as circulating capital) refers to assets that are consumed or transformed during the production process, such as raw materials, inventories, and intermediate goods, as opposed to fixed capital.

Bohm Bawerk proclaimed that "Capital is the produced means of production". Capital is already a produced means as other factors of production are used to produce capital in an economy.

Without the presence of labour factor of production ,capital is of no use,hence capital is a passive factor of production. Without labour , capital will not get utilized in the production mechanism. Capital without the accompany of the labour cannot produce any goods and services in an economy.

Capital formation encompasses the entire process of increasing the stock of real capital, which includes the production of capital goods and the act of investment that adds to the productive capacity of the economy.