Capital Goods vs. Consumer Goods: An Overview
Capital goods and consumer goods are terms used to describe goods based on how they are used. A capital good is any good that is used to help increase future production. Consumer goods are those used by consumers and have no future productive use.
The same physical good could be a consumer or capital good, depending on how it is used. An apple bought from a grocery store and consumed immediately is a consumer good. An identical apple bought by a company to make apple juice is a capital good. The difference lies in the use of the apple.
- Capital goods are goods that one company uses to help another company produce consumer goods.
- Consumer goods are used by consumers and have no future productive use.
- Capital assets include items such as buildings, machinery, and tools.
- Examples of consumer goods include food, appliances, clothing, and automobiles.
Capital goods are any tangible asset used by a company to produce goods or services that later become an input for other companies to produce consumer goods. They are also known as intermediate goods, durable goods, or economic capital. The most common capital assets are property, plant and equipment (PPE) or fixed assets such as buildings, machinery and equipment, tools, and vehicles.
Capital assets are different from financial capital, which refers to the funds that companies use to grow their businesses. Natural resources not modified by human hands are not considered capital goods, although both are factors of production.
Companies do not sell capital goods. That means that capital goods do not directly generate income like consumer goods. To financially survive the accumulation of capital assets, businesses depend on savings, investments, or loans.
Economists and companies pay special attention to capital goods because of the role they play in improving the productive capacity of a company or country. In other words, capital goods allow companies to produce with a higher level of efficiency. For example, consider two workers digging trenches. The first worker has a bucket and the second worker has a tractor equipped with a hydraulic shovel. The second worker can dig much faster because he has the higher capital good.
A consumer good is any good purchased for consumption and not subsequently used for the production of another consumer good. Consumer goods are sometimes called final goods because they end up in the hands of the consumer or the end user. When economists and statisticians calculate gross domestic product (GDP), they do so on the basis of consumer goods.
Examples of consumer goods include food, clothing, vehicles, electronics, and household appliances. Consumer goods are divided into three different categories: durable goods, nondurable goods, and services. Durable goods have a useful life of more than three years and include motor vehicles, appliances, and furniture. Non-durable goods are intended for immediate consumption and have a useful life of less than three years. This includes items like food, clothing, and gasoline. Consumer services are not tangible and cannot be seen, but they can still satisfy consumers. Haircuts, oil changes, and car repairs are examples of services.
Consumer goods can be classified in four ways:
- Convenience goods they are consumed and bought regularly, like milk.
- Purchase products They require more thought and planning and include appliances and furniture.
- Specialty products are more expensive and are tailored to a niche market. Items such as jewelry are special products.
- Some consumers buy unsought goods to satisfy a specific need. Life insurance is an asset that is not sought after.
The sale of most consumer goods is overseen by the Consumer Product Safety Act passed by Congress in 1972. The act created the US Consumer Product Safety Commission, which regulates the safety of products and has the authority to request recalls from manufacturers and ban products in certain circumstances.