Human Capital vs Physical Capital
Human Capital and Physical Capital are two Economic Growth concepts in AP Economics that students often mix up. In short: human capital is human capital is the knowledge, skills, and health embodied in workers that make them more productive. Meanwhile, physical capital is physical capital is the stock of manufactured tools, machinery, equipment, and structures used to produce goods and services. Here is how they compare side by side.
Human capital is the knowledge, skills, and health embodied in workers that make them more productive.
It is built through education, training, and experience. Investing in human capital raises labor productivity and is a key driver of long-run growth. It shifts the production possibilities curve and long-run aggregate supply outward.
Physical capital is the stock of manufactured tools, machinery, equipment, and structures used to produce goods and services.
Increasing physical capital per worker, called capital deepening, raises productivity and output. It is created through investment, which requires saving. With human capital and technology, it drives long-run economic growth.
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