Question

Why is human capital the most important factor of production? Give three reasons.

Answer 1

Human capital is the most important factor of production because of the following reasons:
(i) Gifted with life and reasoning power, humans can make use of the land, labour and physical capital. Man's knowledge and enterprise put together with land, labour and physical capital can produce output for personal use or to sell in the market.
(ii) Investment in human capital yields a return just like investment in physical capital. A country with a more young, healthy and skilled population is more productive, such as Japan.
(iii) Human capital is essential, as physical capital cannot produce goods and services on its own, but requires human capital to coordinate all inputs to produce the desired goods and services.