Question

Differentiate between capital and capital formation.

Answer 1

Aspect	Capital	Capital Formation
Definition	Capital refers to man-made resources such as machinery, tools, equipment, and buildings used in the production of goods and services.	Capital formation refers to the process of accumulating capital assets (such as machinery, tools, infrastructure) over time to increase productive capacity.
Role in Production	Capital is one of the four factors of production (land, labour, capital, and entrepreneurship) and is used in the production process to generate goods and services.	Capital formation is the process of increasing the stock of capital, which in turn helps boost production and economic growth.
Nature	Capital is a stock; it is the existing amount of resources available for production at a given time.	Capital formation is a flow; it refers to the ongoing process of adding to the capital stock through investments and savings.
Examples	Examples of capital include factories, machines, tools, buildings, and infrastructure.	Capital formation includes activities such as saving, investment in new equipment, construction of factories, and development of infrastructure.
Importance	Capital is essential for enhancing productivity and efficiency in production.	Capital formation is crucial for economic growth as it increases the economy's productive capacity.