Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Indian Economic Development: Human Capital Formation in India

Question:

Poor countries tend to be unhealthy, and unhealthy countries tend to be poor. Across the broad swath of history, improvements in income have come hand-in-hand with improvements in health. Further, the poorest countries of the world are in the tropics, an area rife with tropical disease. These stylized facts lead to a natural question: does disease hold back development? It seems possible that it would. Health is a kind of human capital as well as an input to producing other forms of human capital. Being unhealthly depresses the ability to work productively and/or the ability and incentives to invest in human capital. Taken together, these mechanisms imply that worse health implies lower income. The correlation between health and development is hard to interpret simply as the causal effect of health on income. Third factors such as bad government or geographic disadvantages might impede both productivity and disease control. Health is also a normal good: when people get richer, they invest more in their own health, and exhort their governments to spend more on public health. The correlation between health and income might be one of circular and cumulative causation: health affects income and income affects health and so on.

Which of the following statement is correct?

Options:

Human capital benefits only the owner.

Human capital is separable from its owner.

Human capital is intangible whereas physical capital is tangible.

Human capital can be sold in the market.

Correct Answer:

Human capital is intangible whereas physical capital is tangible.

Explanation:

Physical capital is related to the non-human assets which help in the production process.  It includes machinery, buildings, computers, etc – which are tangible in nature. Whereas, human capital is connected with human assets – education, health, or skills. It cannot be touched, however, it can be measured and analyzed.

Option 1: 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.

Option 2: The physical capital is separable from its owner, whereas, human capital is inseparable from its owner.

Option 4: Human capital is not sold in the market; only the services of the human capital are sold.