What Is an Example of Physical Capital?
In any economy, goods and services are produced every day. There are three main factors of production: land and natural resources; human capital, such as labor and education; and physical capital. Physical capital consists of tangible, human-made productive resources that are available in physical form. Buildings, machinery, vehicles, computers, and equipment are all prime examples of physical capital. It’s one of the three factors of the production process and is a significant foundation of economic growth. Find out more about how different physical capital resources can be used in the production of other goods and services below.
A factory building consists of different machines used for various purposes. For example, raw materials can be delivered to the factory via a delivery truck ― another form of physical capital ― where they’re placed in various machines for processing. The factory acts as a host to multiple manufacturing machinery like liquid filling, packaging, and laser-cutting machines.
Invented in the early 1800s, computers powerfully revolutionized our world. The concept of a computer didn’t change until the end of the 19th century when the industrial revolution began. Factories use computers to operate their machines like the oven’s temperature and moving raw materials from one location to the next that, in turn, increases production growth.
Machinery and Equipment
Physical capital not only used to store and process raw materials but in the production of other goods and services across the entire economy. For instance, trackers are used in agriculture in the process of producing crops. A sewing machine is used in the clothing industry whereas an assembly line is a component of the automobile industry. These goods and services are then sold at a specific price agreed upon in the free market.
You can use machinery and equipment either directly or predominantly in the creation of tangible personal property for sale. Directly implies that the production phase must act upon or alter the material to create the commodity to be sold. Predominantly implies that the machinery or equipment is used in any manufacturing operation more than 50 percent of the time. Typically, this is dictated by its hours of operation.
Parts, Tools, and Supplies
According to the New York State Department of Taxation and Finance, parts, tools, and supplies used directly and predominantly in the production of goods and services can be purchased exempt from sales tax. Parts consist of components that are connected to machinery or equipment. Examples include gears, motors, and saw blades.
Tools like hammers, drills, and utility knives are manually operated instruments for performing a task. Sandpaper, oil, grease, coolant, and welding rods are ideal examples of supplies used in the maintenance of machines and items used or consumed during production.
Shopping malls are public spaces used by people for various reasons. They consist of multiple shops that offer processed products at a certain fee. Such locations feature various companies that lease large commercial properties for rental payments from retailers and businesses. This type of investment in physical capital leads to higher productivity and increase economic growth.