Capital 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 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 either a consumer or capital good, depending on how the good is used. An apple bought at a grocery store and immediately eaten is a consumer good. An identical apple bought by a company to make apple juice is a capital good. The difference lies in the apple's utilization.
- Capital goods are goods used by one business to help another business produce consumer goods.
- Consumer goods are used by consumers and have no future productive use.
- Capital goods include items like buildings, machinery, and tools.
- Examples of consumer goods include food, appliances, clothing, and automobiles.
Capital goods are any tangible asset used by one business to produce goods or services that then become an input for other businesses to produce consumer goods. They are also known as intermediate goods, durable goods or economic capital. The most common capital goods are property, plant, and equipment (PPE), or fixed assets such as buildings, machinery and equipment, tools, and vehicles.
Capital goods are different from financial capital, which refers to the funds companies use to grow their businesses. Natural resources not modified by human hands are not considered capital goods, although both are factors of production.
Businesses do not sell capital goods. That means capital goods do not directly create revenue like consumer goods. To financially survive the accumulation of capital goods, businesses rely on savings, investments, or loans.
Economists and businesses 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 make it possible for companies to produce at a higher level of efficiency. For example, consider two workers digging ditches. The first worker has a spoon and the second worker has a tractor equipped with a hydraulic shovel. The second worker can dig much faster because they have the superior capital good.
A consumer good is any good purchased for consumption and not used later 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 based on consumer goods.
Examples of consumer goods include food, clothing, vehicles, electronics, and appliances. Consumer goods fall into three different categories: durable goods, nondurable goods, and services. Durable goods have a lifespan of more than three years and include motor vehicles, appliances, and furniture. Non-durable goods are meant for immediate consumption and have a lifespan of fewer than three years. This includes items such as food, clothing, and gasoline. Consumer services are not tangible and cannot be seen, but can still give consumers satisfaction. Haircuts, oil changes, and car repairs are examples of services.
Among the largest group of consumer goods are fast-moving consumer goods, which include nondurable goods like food and drinks.
Consumer goods can be classified in four ways:
- Convenience goods are consumed and purchased regularly, such as milk.
- Shopping goods require more thought and planning and include appliances and furniture.
- Specialty goods are more expensive and cater to a niche market. Items such as jewelry are specialty goods.
- Unsought goods are purchased by some consumers to serve a specific need. Life insurance is an unsought good.
The sale of most consumer goods is overseen by the Consumer Product Safety Act passed by Congress in 1972. The act created the U.S. Consumer Product Safety Commission, which regulates product safety and has the authority to seek recalls from manufacturers and ban products under certain circumstances.