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CAPITAL: TYPES OF CAPITAL, IMPORTANCE OF CAPITAL & ENTREPRENEUR

economics

Capital can be defined as wealth reserved or set aside for the production of further wealth. Capital also refers to all man – made productive assets, that is all man – made wealth or goods used to produce other goods and services.

Examples of capital are machines, tools, factory, buildings, raw material, fuel, money, semi-finish goods and other equipment used in the production of goods and services. The reward for capital is INTEREST.

TYPES OF CAPITAL

  1. FIXED CAPITAL: These are those durable assets of a business or productive unit that can last for a very long time. These assets or capital do not change their form in the process of production. In other words, they are the durable investment which requires renewal only at fairly long intervals. It includes items such as factory building, machinery, tools etc.
  2. CIRCULATING CAPITAL OR WORKING CAPITAL: It consists of capital goods which either change their form or are used up in the process of production. Examples of working capital include raw materials, fuel, water, etc.

Most forms of circulating capital are required on a regular basis in order to maintain production.

  1. CURRENT CAPITAL OR LIQUID CAPITAL: This refers to those things needed for day to day running of the business. Examples include money used to buy raw materials, money used in paying wages and salaries etc.
  2. 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, telephones, etc.

IMPORTANCE OF CAPITAL

  1. Capital facilitates production
  2. It improves efficiency in production
  3. Capital improves the standard of living
  4. Improvement in the quality of goods
  5. Capital ensures the smooth running of business
  6. It saves time in productive activities
  7. Availability of variety of goods.

THE ENTREPRENEUR

An entrepreneur can be defined as the factor of production that co-ordinates and organizes other factors of production ( Land, labour and capital) in order to produce goods and services. The entrepreneur is the chief co-coordinator, controller and organizer of the production process. The reward for entrepreneur is PROFIT

FUNCTIONS OF THE ENTREPRENEUR

  1. Risk bearing: he bears the risk associated with the business
  2. Provision of capital: the entrepreneur provides the capital required for running the business
  3. He has the responsibility of taking major policy decisions, and ensures that the decisions are carried out.
  4. The entrepreneur controls and manages the business
  5. Controls other factors: He has absolute controls over other factors of production
  6. Efficient management: The entrepreneur also plays the role of maintaining efficient management in production lines.

 

Questions:

  1. Explain five characteristics and five importance of entrepreneur.
  2. What is an entrepreneur?
  3. Itemize five functions of an entrepreneur
  4. Define capital
  5. List 5 characteristics of capital.

 

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See also

LOCALISATION OF INDUSTRIES

LOCATION OF INDUSTRY

IMPERFECT MARKET

MARKET STRUCTURE

SUPPLY OF LABOUR

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