FACTORS OF PRODUCTION CONTD
Hi Everyone, How Beautiful is
today? Magnificent isn't it, well I think so too. Just being alive is such a
pleasure and a privilege that sometimes, I think of some great people who have
died and I am filled with awe that God picked me to live till today. God is
Good.
Last time we started this series
and today hopefully we will either finish or draw closer to the close of this
particular topic so let's take this ride together.
CAPITAL
Capital may be defined as man-made
assets used in production. In other words, It refers to Man-made wealth or
goods used to produce other goods and services. It may also be defined as the
stock of previous wealth invested in order to produce future wealth.
Capital when properly combined with
other factors, produces goods and services. Examples of Capital include
Physical Cash, Cutlass, Machines, Buildings, Motor Vehicles and other equipment
used in the production of goods and services. The Reward for Capital is INTEREST.
Characteristics/Features of Capital:
* Capital is man-made before it can
be used in further production of goods and services.
* Capital is durable assets that
can be used for production.
* Capital Promotes Division of
Labour.
* Capital ensures the existence of
enough assistance to firms that want to go into Large Scale of Production.
* Capital is subject to
depreciation.
Types of Capital:
1. FIXED CAPITAL- These are assets which are not used up in the
course of production. Fixed assets include those durable assets of a business
that can last for a very long time. These assets or capital do not change their
form in the process if production. Examples of Fixed Capital include Lands,
Buildings, Tools, Motor Vehicles, Machineries etc.
2. CIRCULATORY OR WORKING CAPITAL- These are assets which are
used up in the course of production. These consist of capital goods which
either change their form or are used up in the process of production. Examples
of Working Capital include Water, Fuel, Raw Materials etc.
3. CURRENT OR LIQUID CAPITAL- Current Capital are the type of
capital that are required for the day-to-day running of productive activities.
They are also changed from one form to another. Examples include Finished Goods,
Money etc.
4. SOCIAL CAPITAL- This includes those forms of capital or
assets provided by the government that aid production. Examples of Social
Capital are amenities provided by the government such as roads, electricity,
water, etc. These Amenities when they are readily available aid the process of
production.
IMPORTANCE OF CAPITAL:
# Capital Facilitates Production.
# Capital boosts Efficiency.
# It assists in Location of
Industry.
# It increases Standard of Living.
# Production of Quality Goods.
CAPITAL FORMATION OR ACCUMULATION
Capital Formation or Capital
Accumulation is the act of increasing a country's stock if real capital. That
is, to increase the net investment in form if fixed assets.
For a Country to be able to
accumulate more capital, there must be increase in savings and a reduction in
consumption of consumer goods. The rate of economic development of any country
is directly related to the rate of capital formation. In most advanced
countries like Britain, Japan and the United States of America, stocks of
capital are high as a result of high rate of capital formation whereas, in many
developing countries of the world, there is a low rate of capital accumulation
as a result of low per capita income and low savings, which results in what is called
vicious cycle of poverty.
Causes of Low Capital Formation in West African Countries:
1. Existence of a Vicious Cycle
of Poverty- Low Income results in Low Savings and in turn results in a
shortage of capital for investment, which results in low investment which leads
to low output and on and on the cycle continues.
2. Wasteful Expenditure-
Many Governments in the West African Region waste alot on expenditure which
results in low capital formation.
3. Inequitable Distribution of
Income- Citizens who are rich are few while the larger chunk are poor and
this along with the fact that the few rich don't spend very wisely leads to low
capital formation.
4. Low Savings- Many Working
Class People don't have the habit of saving in the west African region and this
is not entirely their fault as low income can be a cause of low savings which
in turn causes low capital formation.
NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR
SENIOR SECONDARY SCHOOLS BY C.E ANDE. WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO
MUCH TO DENY ITS ORIGIN. THANK YOU
Hope this was very helpful to you, leave a comment of what you think of
this tutorial and your questions below. Have a Blessed Day and Remember You are
Amazing. God Bless
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