Which one of the following is not an example of working capital? 1.machines 2.raw materials 3.money 4.none of these

1 Answer

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In economic terms, there are three (or in some people’s minds, four) kinds of factors of production.  These are land, labor, and capital (and entrepreneurship).  In economic terms, capital is a term that is used to refer to things that human beings make and that are used to make other things.

Working from this definition, we can see that raw materials are not a form of capital.  They are, of course, used to make other things.  However, they are not made by human beings.  The fact that humans extract them from the ground does not make them “man-made.”  Therefore, raw materials are considered to be “land” in economic terms.

Working from this definition, we can say that machines clearly are capital.  Machines are made by people.  Machines are then used to make other goods that people can consume.  Therefore, they are clearly capital.

Some economists also talk about “financial capital.”  It appears that your class is using this as a type of capital.  Money is a kind of financial capital.  It is made by human beings.  It is used to buy the things (raw materials, labor, machines) needed to make other things.  Therefore, it is sometimes seen as a kind of capital.

Thus, the answer here is #2 because raw materials cannot be considered to be capital.