What distinguishes the benefits of human capital from those of physical capital?
Answer & explanation
Correct answer: option 3
The correct answer is option 3: Physical capital only creates private benefits, while human capital benefits both the owner and society.
Nature of benefits flowing from human capital are different from that of physical capital. Human capital benefits not only the owner but also the society in general. This is called external benefit. An educated person can effectively take part in a democratic process and contribute to the socio-economic progress of a nation. A healthy person, by maintaining personal hygiene and sanitation, stops the spread of contagious diseases and epidemics. Human capital creates both private and social benefits, whereas physical capital creates only private benefit. That is, benefits from a capital good flow to those who pay the price for the product and services produced by it.