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Capital For economists, capital (or capital goods) includes all manufactured aids used in producing
consumer goods and services. Included are all factory, storage, transportation, and distribution
facilities, as well as tools and machinery.
Capital goods differ from consumer goods because consumer goods satisfy wants directly, whereas
capital goods do so indirectly by aiding the production of consumer goods.
For example, large commercial baking ovens (capital goods) help make loaves of bread (consumer
goods). Note that the term “capital” as used by economists refers not to money but to tools,
machinery, and other productive equipment. Because money produces nothing, economists do not
include it as an economic resource. Money (or money capital or financial capital) is simply a means
for purchasing goods and services, including capital goods.
Real capital refers to the physical assets that a business uses to produce goods and services. These
tangible assets can be broadly categorized into three groups:
Structures: This includes buildings, factories, warehouses, offices needed to house production and
operations.
Equipment: This encompasses machinery, tools, vehicles, computers, and other tangible assets used
in the production process.
Cyclical unemployment is caused by a decline in total spending is called cyclical unemployment and
typically begins in the recession phase of the business cycle.
Structural unemployment: arises from a mismatch between the skills offered by workers and the
skills demanded by employers.
Frictional unemployment: always exists in the economy among workers who have voluntarily quit
their previous jobs and are searching for new better jobs or looking for employment for the first time.
The unemployment rate that is consistent with full employment known as the full-employment rate
of unemployment, or the natural rate of unemployment (NRU).
When actual unemployment rate exceeds NRU by 1%, RGDP will decline by 2%.
Labor Force = Employment + Unemployment
Labor Force
Labor force participation rate: ×100 %
Adult Population
Unemployment
Unemployment rate: ×100 %
Labor force
The production possibility curve (PPC) illustrates the maximum attainable output
combinations of two goods given limited resources. It shows the trade-offs an economy or
business faces when allocating those resources. In simpler terms, it depicts what you can
produce the most of, considering you can't make everything at once.
Here are the key assumptions underlying the PPC:
Fixed Resources: The total amount and quality of resources available are constant in
a specific period.
Fixed Technology: The production methods and technology used remain unchanged.
Full Employment: All available resources are fully utilized with no waste or
inefficiency.
Two Goods: The PPC typically focuses on just two goods to represent the concept,
although the principle can apply to more in theory.