Question

Which of the following statements defines the term 'Capital' more appropriately?

• A. Capital is a flow concept.
• B. Capital is the asset created by human efforts and not available in a natural form.
• C. Capital is the same as money.
• D. Capital is comprised of only tangible assets.

Hint:

To distinguish between Land and Capital, remember: Land is a free gift of nature (natural resource), whereas Capital is always 'produced means of production' created by human efforts.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
In classical economics, the factors of production are classified into Land, Labour, Capital, and Enterprise.
Capital represents the man-made instruments of production used to produce further wealth.

Step 2: Detailed Explanation:
Let us evaluate each of the given options:
Option (A): Capital is a flow concept.
This is incorrect. Capital is a stock concept. It represents a physical or financial quantity measured at a specific point in time, whereas investment or income is a flow concept measured over a period.
Option (B): Capital is the asset created by human efforts and not available in natural form.
This is correct. This is the fundamental definition of capital in economics.
While 'Land' is a free gift of nature, 'Capital' must be actively produced through human labour and investment.
Option (C): Capital is the same as money.
This is incorrect. Money is a liquid medium of exchange, whereas capital consists of physical assets (like machinery, factories, and tools) used in the production process.
Option (D): Capital is comprised of only tangible assets.
This is incorrect. Capital can also be intangible, such as intellectual property, patents, human capital, and proprietary software.
Thus, Option (B) is the most appropriate definition.

Step 3: Final Answer:
The correct option is (B).