Previous Year Question
With reference to physical capital in the Indian economy, consider the following pairs:
Items | Category |
1. Farmer’s plough | Working capital |
2. Computer | Fixed capital |
3. Yarn used by the weaver | Fixed capital |
4. Petrol | Working capital |
How many of the above pairs are correctly matched?
Only one
Only two
Only three
All four
Correct Answer: B
Detailed Solution
Physical capital used in production is primarily divided into fixed capital and working capital.
Fixed capital includes tools, machines and buildings that can be used repeatedly for a long period. They are not exhausted during a single production cycle. Working capital includes raw materials and other inputs that are regularly consumed or transformed during production.
Pair 1 is incorrectly matched. A farmer’s plough is a durable agricultural tool. It can be used over several crop cycles and for many years. It is not exhausted in a single production process. Therefore, a farmer’s plough is fixed capital, not working capital.
Pair 2 is correctly matched. A computer is used for accounting, designing, production control, communication and other business operations over a long period. It is a durable productive asset that can be used repeatedly. Therefore, a computer is fixed capital.
Pair 3 is incorrectly matched. Yarn used by a weaver is the raw material for producing cloth. During weaving, yarn is transformed into cloth and cannot be reused in its original form. Therefore, yarn is working capital, not fixed capital.
Pair 4 is correctly matched. Petrol is consumed as fuel during production or transportation. It cannot be repeatedly used in the same form over several production cycles. Therefore, petrol constitutes working capital.