With reference to physical capital in Indian economy, consider the following pairs:
Items | Category |
---|---|
1. Farmer’s plough | Working capital |
2. Computer | Fixed capital |
3. Yarn used by the weaver | Fixed capital |
4. Petrol | Working capital |
How many of the above pairs are correctly matched?
(a) Only one
(b) Only two
(c) Only three
(d) All four
Correct Answer: (b) Only two
Explanation:
- Pair 1: Farmer’s plough – Working capital
- Pair 2: Computer – Fixed capital
- Pair 3: Yarn used by the weaver – Fixed capital
- Pair 4: Petrol – Working capital
Learn more:
Physical Capital in the Indian Economy
- Definition: Physical capital refers to the variety of inputs required at every stage during production. It includes both fixed capital and working capital.
- Fixed Capital:
- Nature: Long-term assets used in production over many years.
- Examples: Machinery, buildings, tools, computers, and vehicles.
- Characteristics: Not easily converted to cash, used repeatedly in production, and depreciates over time.
- Importance: Essential for establishing and maintaining the production capacity of a business.
- Working Capital:
- Nature: Short-term assets used in day-to-day operations.
- Examples: Raw materials, cash, inventory, and fuel.
- Characteristics: Highly liquid, consumed in the production process, and needs regular replenishment.
- Importance: Crucial for maintaining the smooth operation of a business and meeting short-term financial obligations.
- Role in Production:
- Fixed Capital: Provides the necessary infrastructure and equipment for production.
- Working Capital: Ensures the availability of necessary materials and liquidity to keep the production process running smoothly.
- Economic Impact:
- Fixed Capital: Investments in fixed capital can lead to increased production capacity and long-term growth.
- Working Capital: Adequate working capital is essential for operational efficiency and financial stability.