“Both physical capital and human capital depreciate with time, but the nature of depreciation differs between the two.”
Do you agree with the given statement ? State and discuss valid reasons in support of your answer.
“Both physical capital and human capital depreciate with time, but the nature of depreciation differs between the two.”
Do you agree with the given statement ? State and discuss valid reasons in support of your answer.
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Solution and Explanation
Yes, we agree with the statement. Both kinds of capital lose value over time, but the way they lose it is different.
Step 2: Depreciation of physical capital:
Machines and buildings suffer wear and tear with continuous use.
A change in technology also makes them obsolete, even if they are still working.
Once obsolete, physical capital cannot be revived and has to be replaced.
Step 3: Depreciation of human capital:
Human capital depreciates mainly with ageing.
This loss can be reduced to a large extent through continuous investment in education, health and training.
Such investment also helps people cope with new technology.
Step 4: Compare the two:
Physical capital cannot adjust to a change in technology, but human capital can learn and adapt.
So the nature of depreciation differs, and the statement is correct.
Final Answer:
We agree. Physical capital depreciates through wear and tear and obsolescence and cannot adapt, while human capital depreciates with ageing but can be renewed through investment in education and health.
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