What is the Definition of Capital in Economics?
Answer – In economics, capital refers to a broad category of financial and physical assets used by individuals, businesses, or governments to generate wealth.
Explanation:
Capital is typically categorized into:
- Financial capital: This includes money and financial assets that individuals, businesses, and governments use for investment and operational purposes.
- Example: Investment Banks such as Goldman Sachs, Morgan Stanley; mutual funds companies including Vanguard and Fidelity.
- Physical capital: It refers to tangible assets such as machinery, equipment, factories, infrastructure, vehicles, and real estate used in the production of goods and services.
- Human capital: Human capital represents the skills, knowledge, and expertise of humans that contribute to their productivity and earning potential. It includes college degrees (education), training, and experience.
- Social capital: Social capital relates to the networks, relationships, and social connections that have economic value.
- Natural capital: It encompasses natural resources and ecosystems that provide essential inputs for economic activities. This includes land, water, minerals, and ecological services.
- Example: A river that supplies water for agriculture and hydroelectric power