Economics

Importance Of Capital In Business And Economics

Importance Of Capital In Business

Capital plays an important role in the production process. Indeed production process is not possible in the absence of capital. The Importance Of Capital In Business And Economics is explained as follows :

1. Provision of tools and machines : This is the main function of Capital. Capital provides various tools, machines and equipment required in production. Production of goods can be carried on large scale when these implements are provided to the workers. In the absence of capital, producers find it difficult to furnish the above implements. This paralyses the production process.

2. Provision of subsistence: This is another important function of capital. Laborers have to be paid salaries for their services rendered in production. Because of poverty they cannot wait for months together without salaries. Besides it takes a long time for marketing the finished goods. Meanwhile, capital helps the producers find it difficult to furnish the above implements. This paralyses the production process.

3. Provision of raw materials: Capital makes it easy for the producers to buy raw-materials from the local market. The producers reserve a portion of their investment for the exclusive purpose of buying raw materials.

4. Provision of transport and communication facilities : Transport and communication facilities can be provided and developed with the capital. New buildings. roads and communication amenities can be provided when capital is available in plenty.

5. Continuous production : Capital makes production a continuous process. It helps the producers to bridge the gap between income and expenditure. It helps them to invest on different programmes until they receive income from selling their goods in the market.

6. Increases production and productivity : Capital enables the introduction of machinery. This further increases, production and productivity t the workers. Large scale industries are able to produce more output due to the employment of huge capital and installation of latest machinery.

7. Reduces cost of production : Capital helps in reducing the cost of production. It enables the producers to employ skilled laborers and latest methods of production. As a result the producer gets the economies of scale.

8. Employment opportunities : Capital also increases the employment opportunities, new techniques, skilled laborers, latest technology etc. are Possible due to the investment of capital. The expansion of the size of the Industry leads to the provision of more employment opportunities. In this way capital performs several functions. Economic development and standard of living can be increased with the help of capital.

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