Business Terms: Understanding what Physical Capital means


Some examples of physical capital as used in the economy are buildings, machinery, computers and equipment. Physical capital is a tangible asset that is created by humans and is used in production.

Physical capital is not the land or the raw materials that it takes to create goods or services. The land or raw materials that it takes to create goods or services are called natural resources. The people with the education and the knowledge to produce things are called human capital. Physical capital is what helps turn the raw materials or natural resources into finished products and services. Therefore, physical capital is the equipment and other physical things that the business owner or company invested money into in order to produce their service or product.

One of the best examples of physical capital can be found in the automotive industry. The automotive industry has a series of assembly lines, which are vital physical capital assets as they create the actual cars themselves. Physical capital is considered an important part of the economy as it helps to produce the goods and services that are sold for profit. Physical capital is also a major part of the foundation of economic growth. Other examples of physical capitol include the sewing machines used at clothing companies or the machines that separate food items at a food factory.

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