Capital - Revision history

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	<onlyinclude>'''Capital''' is anything that has [[value]]. Capital must be generated and is then used to create [[wealth]] through [[investment]]. Capital can come in many forms such as '''physical capital''' and '''human capital'''.</onlyinclude><ref name=Ox_econ>"A Dictionary of Economics" published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].</ref> Capital differs from [[money]], in that, money is used to purchase [[goods and services]] whereas capital is used to generate wealth, or more money. The difference is not black and white however, money can be [[financial capital]] and is [[investment \| invested]] thereby generating more wealth.		<onlyinclude>'''Capital''' is anything that has [[value]]. Capital must be generated and is then used to create [[wealth]] through [[investment]]. Capital can come in many forms such as '''physical capital''' and '''human capital'''.</onlyinclude><ref name=Ox_econ>"A Dictionary of Economics" published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].</ref> Capital differs from [[money]], in that money is used to purchase [[goods and services]] whereas capital is used to generate wealth, or more money. The difference is not black and white however, money can be [[financial capital]] and is [[investment \| invested]] thereby generating more wealth.

	===Physical Capital===		===Physical Capital===
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	===Human Capital===		===Human Capital===
	'''Human capital''' refers to the value of labour that accrues above the level of "unskilled" labour, it is the special skills, knowledge and training possessed by the employees of a firm that are used to generate wealth.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 645.</ref> Like all capital, human capital has to be generated at some point. It may be a student who pays to attend university to obtain a degree in [~~[petroleum engineering]~~]. A firm may hire that person to use those skills to generate profit for the firm. The student has invested in an education to generate human capital in the form of a knowledge of petroleum engineering and it has value to the firm which has invested in the human capital of the students knowledge.		'''Human capital''' refers to the value of labour that accrues above the level of "unskilled" labour, it is the special skills, knowledge and training possessed by the employees of a firm that are used to generate wealth.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 645.</ref> Like all capital, human capital has to be generated at some point. It may be a student who pays to attend university to obtain a degree in [https://www.ucalgary.ca/future-students/undergraduate/explore-programs/energy-science energy science]. A firm may hire that person to use those skills to generate profit for the firm. The student has invested in an education to generate human capital in the form of a knowledge of petroleum engineering and it has value to the firm which has invested in the human capital of the students knowledge.

	It can also come in the form on job training whereby the firm invests money in the training of its employees to give them new skills and expand their human capital. If a firm hires a general labourer then that employee is not counted in the human capital of the firm. If the firm pays for special training for the employee to learn skills specific to a job then the employee could be counted in the human capital of the firm as it has invested to increase the value of the employee.		It can also come in the form of on-the-job training whereby the firm invests money in the training of its employees to give them new skills and expand their human capital. If a firm hires a general labourer then that employee is not counted in the human capital of the firm. If the firm pays for special training for the employee to learn skills ''specific'' to a job then the employee could be counted in the human capital of the firm as it has invested to increase the value of the employee.

	==Capital Stock==		==Capital Stock==
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	==References==		==References==
	{{reflist}}		{{reflist}}
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	<onlyinclude>'''Capital''' is anything that has [[value]]. Capital must be generated and is then used to create [[wealth]] through [[investment]]. Capital can come in many forms such as '''physical capital''' and '''human capital'''.</onlyinclude><ref>~~Investopedia.~~ "~~Capital.~~" ~~[Online]~~, ~~Available: http://www~~.~~investopedia.com/terms/c/capital.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch~~ [~~May 16~~, ~~2016~~]</ref> Capital differs from [[money]], in that, money is used to purchase [[goods and services]] whereas capital is used to generate wealth, or more money. The difference is not black and white however, money can be [[financial capital]] and is [[investment \| invested]] thereby generating more wealth.		<onlyinclude>'''Capital''' is anything that has [[value]]. Capital must be generated and is then used to create [[wealth]] through [[investment]]. Capital can come in many forms such as '''physical capital''' and '''human capital'''.</onlyinclude><ref name=Ox_econ>"A Dictionary of Economics" published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].</ref> Capital differs from [[money]], in that, money is used to purchase [[goods and services]] whereas capital is used to generate wealth, or more money. The difference is not black and white however, money can be [[financial capital]] and is [[investment \| invested]] thereby generating more wealth.

	===Physical Capital===		===Physical Capital===
	[[File:Capital- Dam Construction1.jpg\|200px\|framed\|right\|Figure 1. The construction of Shasta Dam on the Sacramento River in Northern California, USA in June 1942.<ref>https://en.wikipedia.org/wiki/File:Shasta_dam_under_construction_new_edit.jpg</ref>]]		[[File:Capital- Dam Construction1.jpg\|200px\|framed\|right\|Figure 1. The construction of Shasta Dam on the Sacramento River in Northern California, USA in June 1942.<ref>https://en.wikipedia.org/wiki/File:Shasta_dam_under_construction_new_edit.jpg</ref> This [[dam]] is an example of physical capital.]]

	'''Physical capital''' is anything tangible or ~~manmade~~ that can be used to produce goods and services and generate wealth, it includes both [[fixed capital]], [[capital stock]] and uncompleted works such as a dam under construction that will eventually produce electricity for sale.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2343?rskey=KruATn&result=1, 2009 [May 16, 2016]</ref> In order for a firm to sell its goods and services, it must produce them and in order to do that a firm must acquire physical capital.		'''Physical capital''' is anything tangible or human-made that can be used to produce goods and services and generate wealth, it includes both [[fixed capital]], [[capital stock]] and uncompleted works such as a [[dam]] (See figure 1) under construction that will eventually produce electricity for sale.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2343?rskey=KruATn&result=1, 2009 [May 16, 2016]</ref> In order for a firm to sell its goods and services, it must produce them and in order to do that a firm must acquire physical capital.

	In the case of an energy firm that is building a [[hydroelectric dam]], it first must acquire the physical dam and all the components that make [[electricity]] before they can sell the electricity for a [[profit]]. Once the dam is built, the firm can sell the electricity that is generated on the [[market]].		In the case of an energy firm that is building a [[hydroelectric dam]], it first must acquire the physical dam and all the components that make [[electricity]] before they can sell the electricity for a [[profit]]. Once the dam is built, the firm can sell the electricity that is generated on the [[market]].
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	This is the '''total value''' of physical capital belonging to a certain entity, it can be a region, country, firm or of a specific industry. The total value is the current value of the physical capital minus the initial cost of acquisition, and any ongoing costs accrued up to that point.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital Stock." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1402?rskey=X0mnpT&result=1, 2009 [May 16, 2016]</ref>		This is the '''total value''' of physical capital belonging to a certain entity, it can be a region, country, firm or of a specific industry. The total value is the current value of the physical capital minus the initial cost of acquisition, and any ongoing costs accrued up to that point.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital Stock." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1402?rskey=X0mnpT&result=1, 2009 [May 16, 2016]</ref>

	For example, a petroleum company builds a refinery where [[crude oil]] is processed and the facility costs the firm $100 million. Ten years later, when determining the capital stock of the firm, the value of the refinery is determined to be:		For example, a petroleum company builds an [[oil refinery]] where [[crude oil]] is processed and the facility costs the firm $100 million. Ten years later, when determining the capital stock of the firm, the value of the refinery is determined to be:

	{\| class="wikitable"		{\| class="wikitable"

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[[Category:Done 2016-04-30]]
<onlyinclude>'''Capital''' is anything that has [[value]]. Capital must be generated and is then used to create [[wealth]] through [[investment]]. Capital can come in many forms such as '''physical capital''' and '''human capital'''.</onlyinclude><ref>Investopedia. "Capital." [Online], Available: http://www.investopedia.com/terms/c/capital.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch [May 16, 2016]</ref> Capital differs from [[money]], in that, money is used to purchase [[goods and services]] whereas capital is used to generate wealth, or more money. The difference is not black and white however, money can be [[financial capital]] and is [[investment | invested]] thereby generating more wealth.

===Physical Capital===
[[File:Capital- Dam Construction1.jpg|200px|framed|right|Figure 1. The construction of Shasta Dam on the Sacramento River in Northern California, USA in June 1942.<ref>https://en.wikipedia.org/wiki/File:Shasta_dam_under_construction_new_edit.jpg</ref>]]

'''Physical capital''' is anything tangible or manmade that can be used to produce goods and services and generate wealth, it includes both [[fixed capital]], [[capital stock]] and uncompleted works such as a dam under construction that will eventually produce electricity for sale.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2343?rskey=KruATn&result=1, 2009 [May 16, 2016]</ref> In order for a firm to sell its goods and services, it must produce them and in order to do that a firm must acquire physical capital.

In the case of an energy firm that is building a [[hydroelectric dam]], it first must acquire the physical dam and all the components that make [[electricity]] before they can sell the electricity for a [[profit]]. Once the dam is built, the firm can sell the electricity that is generated on the [[market]].

===Human Capital===
'''Human capital''' refers to the value of labour that accrues above the level of "unskilled" labour, it is the special skills, knowledge and training possessed by the employees of a firm that are used to generate wealth.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 645.</ref> Like all capital, human capital has to be generated at some point. It may be a student who pays to attend university to obtain a degree in [[petroleum engineering]]. A firm may hire that person to use those skills to generate profit for the firm. The student has invested in an education to generate human capital in the form of a knowledge of petroleum engineering and it has value to the firm which has invested in the human capital of the students knowledge.

It can also come in the form on job training whereby the firm invests money in the training of its employees to give them new skills and expand their human capital. If a firm hires a general labourer then that employee is not counted in the human capital of the firm. If the firm pays for special training for the employee to learn skills specific to a job then the employee could be counted in the human capital of the firm as it has invested to increase the value of the employee.

==Capital Stock==
This is the '''total value''' of physical capital belonging to a certain entity, it can be a region, country, firm or of a specific industry. The total value is the current value of the physical capital minus the initial cost of acquisition, and any ongoing costs accrued up to that point.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Capital Stock." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1402?rskey=X0mnpT&result=1, 2009 [May 16, 2016]</ref>

For example, a petroleum company builds a refinery where [[crude oil]] is processed and the facility costs the firm $100 million. Ten years later, when determining the capital stock of the firm, the value of the refinery is determined to be:

{| class="wikitable"
|-
| Cost to Build|| -$100m
|-
| Operating Cost || -$10m av. per year, $100m total
|-
| Retrofit Cost || -$25m
|-
| Gross [[Revenue]]|| $50m av. per year, $500m total
|-
| '''Net Value''' || $275m
|}
The process of adding to the capital stock is called [[capital formation]]. The amount of capital formation needed to begin the production of goods and services is called the '''fixed capital'''.
===Desired Capital Stock===
This is the amount of capital that a firm needs to maximize their profits, and is determined by comparing the cost and benefit of adding an additional unit of capital to their capital stock.<ref>A. B. Abel, et al. ''Macroeconomics'', ''6''th ed. Toronto, Canada: Pearson, 2011, pp. 120.</ref> If the benefit from adding the additional unit is greater than the cost of such, then the firm will add the unit, and if the cost is greater, the firm will not add the unit. If a firm analyzes their capital stock to be of a net cost to the firm, then they can sell units until they are at an equilibrium of capital stock.

If the same firm builds a second oil refinery beside the first but it only operates a quarter of the time that the first does because there is not enough demand for the products it produces then it will count as a net cost in the stock capital of the firm:
{| class="wikitable"
|-
| Cost to Build|| -$100m
|-
| Operating Cost || -$10m av. per year, $100m total
|-
| Retrofit Cost || -$25m
|-
| Gross Revenue|| $12.5m av. per year, $125m total
|-
| '''Net Value''' || -$100m
|}

To correct the imbalance in their capital stock, the firm might sell the refinery to another firm. For more on this see [[Diminishing Marginal Return | diminishing marginal returns]].

==References==
{{reflist}}