1. Poor. 2. Insufficiently. 3. Low. 4. To spend.

Lesson 15

Capital

Part I

The capital of a new company is the money that is required to start up the business. In the case of a company already in business, its capital is its net worth. This is calculated by adding its assets and deducting from it the amount owing to creditors.

Capital is sometimes defined as wealth used in the production of more wealth. More specifically, capital consists of plants, factory buildings, raw materials, partly finished goods and the means of transport.

The growth of capital is described as capital formation. This term is commonly used when the growth of a country’s capital is discussed. The country is dependent on certain factors of production for the increase of its capital. These factors are labour, capital and land. Some economists consider the entrepreneur an additional factor while others classify him as part of labour. He is an investor, organizer and manager. He judges the demand for goods and uses his resources in the best possible manner to make a profit.

The economic progress of a country is related to the rate of capital formation. Every country possesses only a limited supply of the factors of production. Hence to assist in capital formation, consumers are required to sacrifice some of their present consumption. This occurs when they save. In other words, if a community spends all its income on consumption goods, it will not be able to increase its capital. It cannot even renew capital equipment, like machines, which have worn out. Therefore the institution as well as the individual must save for the economic well-being of the country.

Vocabulary

Part II

capital	money with which a business is started.
wealth	possession of property or money in great quantity.
resources	wealth, raw materials, etc.
investor	one who puts money into a business.
plant	apparatus, machinery etc. used for manufacturing goods.
raw materials	things not yet used in manufacture.
partly finished goods	goods that have gone through only part of the production process.
rate	a measure of quantity.
worth	having a certain value.
asset	any thing owned by a person or company that has money value.
dependent	one who depends upon another.
factor	a circumstance helping to bring about a result.
labour	bodily or mental work.
land	earth as used for buildings, farms etc.
economy	management of the money, goods and other resources of a community.
economic	designed to give a profit.
sacrifice	the giving up of something valuable to benefit someone else.
to consume	to use up.
to save	to keep for future use.
community	the people living in one place.
to renew	to make as good as new.
institution	an established organization dedicated to public service.
well-being	health, happiness and prosperity.

Explanations

Part III

1. Capital is wealth used in increasing wealth. The capital of a company is the money that has to be collected for starting the business.

2. In a balance sheet the assets of a company include everything that has a money value. Its fixed assets comprise buildings, equipment, vehicles etc. Its current assets include cash, stock, debtors (money owed by customers) etc.

3. An entrepreneur is a person who organizes and manages a business. He is responsible for decisions such as what to produce and how much to produce. He will decide on the method of production and the proportion in which he will use his capital, labour and land. Bearing the risk of uncertain demand for his goods is considered one of his principal functions.

4. A consumer is one who uses goods. Consumers’ goods are those which directly satisfy human requirements such as food and clothing.

5. Income is the money earned by a person for a period of time. Examples of it are salary, profits from trade and interest from investments.

Exercises

1. Answer the following questions.

1. What is the capital of a new company?

2. How do you calculate the capital of a company?

3. What is capital formation?

4. What are the factors of production?

5. Who is an entrepreneur?

2. Give the meanings of the following words.

1. Capital. 2. Wealth. 3. Investor. 4. Plant. 5. Asset

3. Give the word that fits the description.

1. Things not yet used in manufacture.

2. A circumstance helping to bring about a result.

3. Bodily or mental work.

4. The giving up of something valuable to benefit someone else.

5. Management of the money, goods and other resources of a community.

Conversation on capital

Part I

Mrs Smith.	Could you tell me, dear, about the role of capital in business.
Mr Smith.	It will be my pleasure to explain it.
Mrs Smith.	What does the word capital mean?
Mr Smith.	It is the money required to start a business.
Mrs Smith.	How will it be used?
Mr Smith.	Tools, plants, raw materials and other essentials will be bought with it.
Mrs Smith.	What does the term capital formation mean?
Mr Smith.	The growth of capital in a country is described as capital formation.
Mrs Smith.	What factors contribute to it?
Mr Smith.	The three basic factors are labour, land and capital. They are called the factors of production.
Mrs Smith.	Who is an entrepreneur?
Mr Smith.	He is a creative businessman who uses his imagination, initiative and resources to make a success of his business ventures.
Mrs Smith.	How does the entrepreneur help a country?
Mr Smith.	His profits and economic activities contribute to the wealth of a country.
Mrs Smith.	What is a consumer?
Mr Smith.	A member of the public who pays for goods and services is a consumer.
Mrs Smith.	How could the consumer help the economic progress of his country?
Mr Smith.	One way he could do this is by saving some of his income.
Mrs Smith.	How does this help?
Mr Smith.	By saving he increases the availability of capital.
Mrs Smith.	Will his individual effort make any difference?
Mr Smith.	As one of many people accumulating capital, he will be assisting the economic progress of the country.