Physical Capital
Workers are more productive if they have tools with which to work. The stock of equipment and structures that are used to produce goods and services is called physical capital, or just capital. For example, when woodworkers make furniture, they use saws, lathes, and drill presses. More tools allow work to be done more quickly and more accurately. That is, a worker with only basic hand tools can make less furniture each week than a worker with sophisticated and specialized woodworking equipment.
the inputs used to produce goods and services— labor, capital, and so on—are called the factors of production. An important feature of capital is that it is a produced factor of production. That is, capital is an input into the production process that in the past was an output from the production process. The woodworker uses a lathe to make the leg of a table. Earlier the lathe itself was the output of a firm that manufactures lathes. The lathe manufacturer in turn used other equipment to make its product. Thus, capital is a factor of production used to produce all kinds of goods and services, including more capital.