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ANDEAN COMMUNITY: The Andean Community (CAN) is a subregional organization endowed with an international legal status, which is made up of Bolivia, Colombia, Ecuador, Peru and Venezuela. The main objectives of the Andean Community are to promote the balanced and harmonious development of the member countries under equitable conditions, to boost their growth through integration and economic and social cooperation and to enhance participation in the regional integration process with a view to the progressive formation of a Latin American common market. The Andean Community started operating on August 1, 1997 with a General Secretariat, whose headquarters are in Lima (Peru), as its executive body.
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                           CAPITAL: The manufactured, artificial, or synthetic goods used in the production of other goods, making capital the "produced" factor of production. This is one of four basic categories of resources, or factors of production. The other three are labor, land, and entrepreneurship. Capital makes labor more productive. Capital includes the manufactured (or previously produced) resources used to manufacture or produce other goods. Common examples of capital are the factories, buildings, trucks, tools, machinery, and equipment used by businesses in their productive pursuits. Capital's primary role in the economy is to improve the productivity of labor as it transforms the natural resources of land into wants-and-needs-satisfying goods.Physical and FinancialFirst and foremost, note the difference between physical capital and financial capital. - Physical capital is the tangible items used for actual production, including factories, buildings, trucks, tools, machinery, and equipment.
- Financial capital, in contrast, is the legal claims on the ownership of physical capital. Such legal claims usually take the form of paper documents or electronic computer entries. For example, corporate stock (a well-known type of financial capital) is the ownership of a corporation's factories, buildings, and equipment.
Financial types generally use the term "capital" when referring to the financial capital, while economic types are more inclined to use the term for physical capital. Because financial capital represents ownership of physical capital, the dual use of this term is logical and appropriate. Categories of CapitalFactories and equipment usually come to mind first when the discussion turns to (physical) capital. Physical capital, however, includes a hodge-podge of productive assets. The hodge and the podge can be better seen by separating capital into four different categories--inventories, equipment, fixed structures, infrastructures. These categories are different both in use and the time required for production. Consider examples of each category for the hypothetical Shady Valley restaurant, Manny Mustard's House of Sandwich.- Inventories: Also commonly termed working capital, inventories are the raw materials, intermediate goods, and finished products that smooth production uncertainties and let producers fill sales orders in a timely fashion. The meat, bread, and condiments that Manny Mustard's House of Sandwich has on had to prepare sandwiches are examples of inventories.
- Equipment: This includes the tools, machinery, vehicles and other "moveable" productive capital that is not "permanently" attached to the land. Equipment is an extremely diverse grouping, ranging from hand-held screwdrivers to 18-wheel tractor-trailer trucks. The tables, chairs, counter, and cash register in Manny Mustard's House of Sandwich fall into the equipment category.
- Fixed structures: All sorts of buildings--factories, warehouses, office buildings, shopping malls, residential homes, apartment complexes, and hospitals--are part of this category of capital. Basically anything with four walls and a roof would be included. The building that houses Manny Mustard's House of Sandwich is an example of a fixed structure.
- Infrastructure: Infrastructure includes assorted transportation systems that move people, materials, goods, information, or energy around, including streets, highways, bridges, railroads, airports, waterways, sewage systems, telephone systems, and electrical distribution systems. Many of these are public utilities, either owned and operated by government or if privately owned, heavily regulated by government.The street used by customers to visit Manny Mustard's House of Sandwich is infrastructure.
Business CyclesThe length of time required for production of each capital type plays a key role in business cycles and macroeconomic instability. In the grand economic scheme of the aggregate economy, inventories can be produced (or acquired) quickly, equipment takes a little longer, fixed structures are even more time-consuming to produce, and infrastructure takes the longest of the four. Standard four-year business cycles are generally associated with inventories. Longer-term instability is often attributed to the other capital types.The Investment TradeoffOne of the more important economic aspects of capital is the fundamental tradeoff between the production of capital goods and the production of consumption goods. Consumption goods provide current satisfaction of wants and needs and capital goods are productive resources used to produce other goods. Producing more capital goods and fewer consumption goods is the basic act of investment and the primary means of achieving economic growth.Human CapitalBefore closing this entry on capital, one remaining type of capital needs to be acknowledged, human capital. Human capital is the knowledge, experience, and training that make labor more productive. As a "produced" resource, it is conceptually comparable to standard physical capital. The primary difference is that human capital involves the transformation of a human, whereas physical capital involves the transformation of nonhuman materials.
Recommended Citation:CAPITAL, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: April 19, 2024].
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Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius wanting to buy either a video camera with stop action features or one of those memory foam pillows. Be on the lookout for the happiest person in the room.
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The penny is the only coin minted by the U.S. government in which the "face" on the head looks to the right. All others face left.
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