With reference to physical capital in Indian economy, consider the following pairs:

1. Farmer’s ploughWorking capital
2. ComputerFixed capital
3. Yarn used by the weaverFixed capital
4. PetrolWorking 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


  • Pair 1: Farmer’s plough – Working capital
    • Incorrect. A farmer’s plough is an example of fixed capital. It is a tool that can be used over many years in the production process and is not consumed in a single production cycle.
  • Pair 2: Computer – Fixed capital
    • Correct. A computer is considered fixed capital as it is a long-term asset used in the production process over multiple years.
  • Pair 3: Yarn used by the weaver – Fixed capital
    • Incorrect. Yarn used by a weaver is an example of working capital. It is a raw material that is consumed in the production process.
  • Pair 4: Petrol – Working capital
    • Correct. Petrol is considered working capital as it is consumed during the production process and needs to be replenished regularly.

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.

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