NCERT Class 11 Economics — Chapter 5: Human Capital Formation in India

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Which of the following statements correctly describes the nature of benefits flowing from Human Capital compared to Physical Capital?

Official previous-year question

Verified 1 Aug 2026.

Options

ABoth forms of capital create only private benefits.
BHuman capital creates both private and social benefits.
CHuman capital creates only private benefits, while physical capital creates social benefits.
DPhysical capital creates both private and social benefits.

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Solution

The correct option is Human capital creates both private and social benefits..

Explanation

Capital formation is essential for economic growth and is broadly categorized into Physical Capital (tangible assets like machinery, buildings) and Human Capital (intangible assets like skills, education, and health). A fundamental distinction between the two lies in the nature of the benefits-private versus social-that they generate.

Analysis of Capital Benefits

Human Capital: It creates both private and social benefits.
- Private Benefits: An educated or healthy individual earns a higher income, enjoys better career prospects, and leads a better quality of life.
- Social Benefits: Society gains indirectly (positive externalities). For instance, an educated citizenry makes better democratic choices and fosters innovation. A healthy person contributes to herd immunity and prevents the spread of diseases.
Physical Capital: In the context of production factors, physical capital creates only private benefits.
- The returns from physical assets (e.g., profits from a factory or utility from a car) accrue exclusively to the owner. It does not inherently generate the widespread positive externalities associated with education and health.

Key Takeaway
The defining characteristic of Human Capital is that it generates positive social externalities (benefits to society) alongside private returns, whereas Physical Capital is characterized primarily by private returns to the owner.

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More from Chapter 5: Human Capital Formation in India

"A sick labourer without access to medical facilities is compelled to abstain from work and there is loss of productivity." This statement highlights the importance of which source of human capital?

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With reference to the concept of ‘Human Capital’, consider the following statements: 1. It refers solely to the physical strength of the workforce. 2. Unlike physical capital, human capital is not perfectly mobile between countries. 3. Human capital formation is not solely a conscious decision of the possessor. Which of the statements given above is/are correct?

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Consider the following statements regarding the sources of human capital formation: 1. Social medicine refers to the use of medicine for social gatherings. 2. Preventive medicine includes vaccination. 3. Provision of clean drinking water is unrelated to health expenditure. Which of the statements given above is/are correct?

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With reference to ‘On-the-job training’ as a source of human capital, consider the following statements: 1. It may involve training workers within the firm or sending them for off-campus training. 2. Firms incur expenses on training as a charity without expecting returns. 3. Workers are often required to work for a specific period after training. Which of the statements given above is/are correct?

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Consider the following statements regarding the relationship between human capital and economic growth: 1. Empirical evidence proves a clear cause-and-effect relationship from human capital growth to economic growth in developing countries. 2. Higher income causes the building of a high level of human capital and vice versa. 3. Convergence in human capital measures has not led to a convergence in per capita real income. Which of the statements given above is/are correct?

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The correct option is Human capital creates both private and social benefits..

Explanation

Analysis of Capital Benefits

Human Capital: It creates both private and social benefits.
- Private Benefits: An educated or healthy individual earns a higher income, enjoys better career prospects, and leads a better quality of life.
- Social Benefits: Society gains indirectly (positive externalities). For instance, an educated citizenry makes better democratic choices and fosters innovation. A healthy person contributes to herd immunity and prevents the spread of diseases.
Physical Capital: In the context of production factors, physical capital creates only private benefits.
- The returns from physical assets (e.g., profits from a factory or utility from a car) accrue exclusively to the owner. It does not inherently generate the widespread positive externalities associated with education and health.