Correct Option: A. it is productive Detailed Explanation: Capital earns income primarily because it is productive. In economics, "capital" refers to the tools, machinery, buildings, and technology that are used in the production of goods and services. The productivity of capital means that it can help produce more output than would be possible with labor alone. Here’s a step-by-step breakdown of why option A is correct:

1. Definition of Capital: Capital is one of the four factors of production, alongside land, labor, and entrepreneurship. It includes physical assets like machinery, tools, and buildings, as well as financial assets that can be used to invest in production.
2. Productivity of Capital: Capital increases the efficiency of production. For example, a factory equipped with advanced machinery can produce more goods in less time compared to a factory that relies solely on manual labor. This increased output leads to higher profits, which is the income earned by capital.
3. Return on Capital: The income generated from capital is often referred to as "return on capital." This can take various forms, such as interest, dividends, or profits. The more productive the capital, the higher the return it can generate.
4. Economic Growth: Investment in capital is crucial for economic growth. When businesses invest in new technologies or equipment, they can produce more efficiently, leading to increased output and economic expansion. This growth is a direct result of the productive capacity that capital provides.
5. Marginal Productivity Theory: According to the marginal productivity theory, the income earned by any factor of production, including capital, is determined by its marginal productivity. This means that capital earns income because it contributes to the production process and adds value to the output.

Why Other Options Are Incorrect:

• Option B: it is expensive: While capital can be expensive to acquire, this does not explain why it earns income. The cost of capital does not directly correlate with its ability to generate income. In fact, some forms of capital can be relatively inexpensive but still highly productive.
• Option C: it is always cheaper to substitute capital for labor: This statement is not universally true. The decision to substitute capital for labor depends on various factors, including the specific industry, the nature of the work, and the relative costs of labor and capital. In some cases, it may be more cost-effective to use labor rather than capital, especially in labor-intensive industries.
• Option D: it is technically more efficient than labor: While capital can be more efficient in certain contexts, this statement is too broad. Efficiency can vary based on the type of work being done. In some situations, labor may be more efficient, particularly in tasks that require human judgment, creativity, or flexibility. Therefore, this option does not universally justify why capital earns income.

Summary:

• Capital earns income because it is productive and enhances the efficiency of production.
• The return on capital is linked to its ability to generate output and add value.
• Investment in capital is essential for economic growth and increased productivity.
• Not all capital is expensive, and the substitution of capital for labor depends on specific circumstances, making options B, C, and D less accurate.