A:

Capital goods and consumer goods are classified based on how they are used. A capital good is any good deployed to help increase future production. The most common capital goods are property, plant and equipment, or PPE. Consumer goods are any goods that are not capital goods; they are goods used by consumers and have no future productive use.

Economists and businesses pay special attention to capital goods because of the role they play in improving the productive capacity of a firm or country. In other words, capital goods make it possible to produce at a higher level of efficiency.

For a simple explanation of how capital goods increase marginal productivity, consider two workers who are digging ditches. The first worker has a spoon and the second worker has a tractor with a hydraulic shovel. The second worker can dig much faster because he has the superior capital good.

Capital Goods

Capital goods are also known as intermediate goods, durable goods or economic capital. They are different than financial capital, which refers to 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, which means capital goods do not directly create revenue like consumer goods. To financially survive the accumulation of capital goods, businesses rely on savings, investment or loans.

Consumer Goods

A consumer good is any good purchased for consumption and not later used for the production of another consumer good. Consumer goods are sometimes called final goods. When economists and statisticians calculate gross domestic product (GDP), they do so based off of consumer goods.

The same physical good could be a consumer good or a capital good. 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 its utilization.

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