Correct Option
The correct option is 1 only
Explanation
In economics, capital is classified into physical capital (tangible assets like machinery) and human capital (intangible assets like skills and health). A key distinction between them lies in the nature of benefits they generate. External benefits (or positive externalities) refer to the benefits that accrue to society or third parties beyond the private owner of the asset.
Statement-wise Analysis
- Statement 1 is Correct: In the context of standard economic distinctions, physical capital is characterized as creating private benefits for the owner. The benefits of owning a machine or a factory are primarily internalized by the entity that owns it. While physical infrastructure can have externalities, the theoretical distinction emphasizes that physical capital is fully transmittable and benefits the owner directly, unlike human capital which has broader social implications.
- Statement 2 is Incorrect: Human capital creates both private and social (external) benefits. While the individual benefits from higher income and better health (private benefit), society benefits through a more skilled workforce, innovation, and social stability. The benefits are not restricted to the individual alone.
- Statement 3 is Incorrect: An educated person effectively participating in the democratic process makes better choices for the nation, contributing to societal progress and governance. This is a classic example of an external benefit (social benefit), not a private benefit. Private benefits of education would include the individual's salary or personal status.
Key Takeaway
Human capital generates significant positive externalities (social benefits) alongside private benefits, whereas physical capital is primarily associated with generating private benefits for the owner.