UPSC Prelims 2024 Question:

With reference to physical capital in Indian economy,

consider the following pairs:

	Items	Category
1.	Farmer's plough	Working capital
2.	Computer	Fixed capital
3.	Yarn used by the weaver	Fixed capital
4.	Petrol	Working capital

How many of the above pairs are correctly matched?

Explanation:

• • Fixed Capital: Fixed capital refers to long-term tangible assets used in the production process. These assets are relatively permanent and are not intended to be sold or converted to cash within a short period (usually more than one year).
    
    
  • Working Capital: Working capital refers to short-term assets and liabilities that a company uses in its day-to-day operations. These assets are constantly changing as they are used and replaced within a year (operating cycle).

• Farmer's plough - Fixed capital

• • • These are short-term assets used in the day-to-day operations of a business. They are typically consumed or converted into cash within a year. A farmer's plough is a durable tool used repeatedly in the production process. So, pair 1 is not correctly matched.

• Computer - Fixed capital

• • • These are tangible assets with a relatively long lifespan (more than one year) used in the production process. They depreciate (lose value) over time but are not consumed entirely during production. A computer fits this definition. So, pair 2 is correctly matched.
  • Yarn used by the weaver - Working capital
    • Yarn is a raw material directly used in weaving cloth. Raw materials are considered current assets within working capital. Once used in production, they are gone. So, pair 3 is not correctly matched.

• Petrol - Working capital

• • Petrol is fuel consumed in the operation of machinery or vehicles. It's a short-term asset used in production and gets entirely consumed within a short period. So, pair 4 is correctly matched.
    
    

Therefore, option (2) is the correct answer.

Subject: Economics | Micro and Macroeconomics