Definition of Capital in economics

Capital is a factor of production. Generally in economics by the word capital we mean that part of wealth which is used to produce further more wealth.

Capital is not used to satisfy the human wants directly. Capital is further categorized in the following forms:

Forms of Capital:

Following are the forms of capital:

With Respect to Ownership:

With respect of ownership capital is further more divvied into two parts:

  • Public Capital:

The common property of nation is called public capital such as roads, parks etc.

  • Private Capital:

The type of capital which is owned by a single person or institute is known as private capital. E.g. factories, mechanic’s tools etc.

With Respect of Use:

By the use of capital it is divided into following parts:

  • Sunk Capital:

The capital which is once used cannot be converted back to its original form, it is called sunk capital. Roads, dams are few examples of sunk capital.

  • Floating Capital:

The capital which can be converted back to its original form or into some other form is known as floating capital. E.g. shares, bonds etc.

With Respect of Geography:

Geographically capital is divided into following parts:

  • Domestic Capital:

The capital which is produce by the residents of the area or region is called domestic capital.

  • Foreign Capital:

The capital which is received by the foreign country is known as foreign capital.

Factors Influencing the Efficiency of Capital:

Following are the few factors which influence the efficiency of capital:

Skilled Labor:

If the laborer of the industry is trained well then less amount of material will use for the production process.

Quality of Raw Material:

If the raw material is of good quality then it will increase the productivity of product.


If advance technology is used in the production process then it will cause a good impact on the production process (capital).

Mobility of Capital:

If the capital used in the business is perfectly mobile than moving it to a suitable area will give a good favor.


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