Q8 Why is money not considered to b... [FREE SOLUTION]

Chapter 1: Q8 (page 17)

Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of the economic resource, distinct from labor? What roles do entrepreneurs play in the economy?

Short Answer

Expert verified

Money is not considered a capital resource because it is unable to produce anything.

Entrepreneurs use their entrepreneurial skills and combine all the necessary factors of production to produce goods and services for society. Thus, the entrepreneurial ability is the force behind the motivation to initiate and run a production process, whereas the labor is ultimately working on the ideas of the entrepreneur for producing goods and services.

Entrepreneurs play different roles, which are as follows.

Taking initiatives for a production
Bearing the risks on investment
Bringing innovative ideas
Strategy building for the production process

Step by step solution

Money is not a capital economic resource

Economists consider capital resources the goods that aid in producing a particular commodity or service. On the other hand, money cannot produce anything if used as input for the production process.

Money is only used as a medium of exchange. As it cannot be utilized in the production of goods and services, it is not considered the capital economic resource.

Distinction between entrepreneurial ability and labor

Labor economic resource pertains to the humans' physical and mental contributions in the production process of goods and services. Entrepreneurial ability is different from labor economic resource.

The entrepreneurial ability involves the risk-taking perspective, provision of innovative ideas, initiating the production, and strategy building. Therefore, it is a much wider concept and is not placed under the labor economic resource category.

Role of entrepreneurs

The roles of entrepreneurs are as follows.

Taking initiatives: Entrepreneurs are the ones who take the initiative to produce a good or provide a service for society.
Risk bearers: Entrepreneurs invest in different factors of production. The risk associated with the production process is the major component that the entrepreneurs have to figure as the failure of the project will certainly lead to losses.
Innovative ideas: An entrepreneur is responsible for coming up with innovative ideas that help in creating new values for the commodities.
Strategy builders: Entrepreneurs build strategies to carry out the production process efficiently.