Can You Explain The Functions Of Capital?


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Haider Imtiaz Profile
Haider Imtiaz answered
Functions of Capital: The main functions of capital are as under:
1. Important factor of Production: Capital is an important factor of production. Before starting a business, we need the source used in producing e.g. machinery etc.

2. Purchasing Raw material: Raw materials are necessary in the production of finished goods. Capital is used to purchase necessary raw materials.

3. Payment of wages: Laborer is employed and rewards of their mental and physical labor are paid in the shape of money capital.

4. Increase in per capita income: Per capita income of a country increases with an increase in the stock of capital goods e.g. machinery, equipments, buildings, social over head capital (transport and communication) equipments for education, health, housing etc.

5. Increase growth rate in industry and agriculture: The provision of capital goods used in industry and agriculture sector increases the productivity in these sectors.

6. Increase in supply: The modern methods of production determine the quantity of goods and services in an economy. Due to bulk and capital goods, supply of goods and services increases.

7. Economic development: Capital results in technology discoveries and increased capital puts the economy on the path to economic development.

8. Employment opportunities: The employment opportunities are created due to more availability of capital and unemployment problem can be removed.

9. Capital formation: Capital formations means of increase in the stock of real capital in an economy. The more capital involves making of more goods which are all of used for further production of goods.

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