Which one of the following terms denotes the inputs in terms of tools, machines, buildings, raw materials and money in hand required at any stage of production?
- A.Fixed capital
- B.Working capital
- C.Physical capital
- D.Human capital
Correct answer
Explanation
The correct answer is C, Physical capital. Physical capital is the variety of inputs, such as tools, machines, buildings, raw materials and money in hand, needed at every stage of production.
Production needs four factors: land, labour, physical capital and the knowledge and enterprise to combine them, often called human capital. Physical capital is itself of two kinds. Fixed capital means tools, machines and buildings, which are used in production over many years. Working capital means raw materials and money in hand, which are used up in a single round of production, like the yarn a weaver uses or the cash to pay wages. Since the question lists both kinds together, the term that covers them all is physical capital.
A is wrong because fixed capital covers only tools, machines and buildings. B is wrong because working capital covers only raw materials and money in hand. D is wrong because human capital is the knowledge, skill and health of people, not material inputs.
Exam tip: physical capital = fixed capital (tools, machines, buildings) + working capital (raw materials, money in hand).
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