Why is capital considered a factor of production?

Capital can be used to start new businesses.
Capital offers natural resources as raw materials.
Capital includes the workforce that produces goods.
Capital includes the workforce that provides services.

1 answer

Capital is considered a factor of production because it refers to the physical and financial assets that are utilized in the production of goods and services.

Among the options you've presented, the most accurate reason is that capital can be used to start new businesses. This includes investments in machinery, tools, equipment, and buildingsā€”all of which are necessary for producing goods and services.

To clarify the other points:

  • Natural resources as raw materials are typically classified under "land" rather than capital.
  • The workforce that produces goods and the workforce that provides services are classified as "labor," not capital.

In summary, capital encompasses the machinery, tools, buildings, and financial resources needed to produce goods and services, which is why it is considered a crucial factor of production.