Capital vs. Consumer Goods: What's the Difference?

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.

Key Takeaways

  • 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.
  • The same physical good could be either a consumer or capital good, depending on if it's used by a business in the production process, or purchased for consumption and not intended for production or profit.

Capital Goods

Capital goods are any tangible assets 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.

Unlike consumer goods, capital goods are not end-products sold by businesses. Instead, businesses accumulate capital goods and put them to use to produce the goods and services that they do sell. 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 a superior capital good.

Consumer Goods

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.

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What Are Fast-Moving Consumer Goods (FMCG)?

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.

Key Differences

  • The purpose of capital goods is to help produce other products and they are meant for final investment, while consumer goods are bought for personal—and final consumption.
  • Businesses, companies, and manufacturers buy capital goods. Consumer goods are bought by consumers.
  • Consumer goods are characterized by having a direct demand, as they directly satisfy the needs of consumers. On the other hand, capital goods have a derived demand since they satisfy the consumer needs indirectly.
  • The price of capital goods is set by companies, whereas the price of consumer goods is set by suppliers.
  • The marketing strategy used to sell capital goods is Business to Business (B2B) marketing, while Business to Consumer (B2C) marketing is used to sell consumer goods.

Capital Goods vs. Consumer Goods Example

As mentioned above, the same product can be both a capital good and a consumer good based on how it’s used. Imagine a coconut oil extraction plant that buys coconuts from wholesalers or farms to manufacture coconut oil. Here, the coconuts are a capital good and the raw material. The company will use a variety of other capital goods (mainly equipment like dryers, oil expellers, and oil filter presses, among others) to produce oil and distribute it to retailers.

The produced coconut oil bought by a consumer at a retail store or online and intended for personal consumption would be a consumer good, as it would also be a raw coconut you buy to eat at your local supermarket or farmers market.

What Is the Difference Between a Capital Good and Capital Stock?

Capital goods are the assets used by companies and manufacturers in the process of production. Capital stock, on the other hand, refers to the total physical capital available in a company (in the form of plant, property, equipment, machinery, etc.). Capital stock can also refer to the amount of common and preferred shares that a company is authorized to issue.

Do Durable Goods Include Both Capital Goods and Consumer Goods?

Yes, durable goods can be capital goods (man-made, durable items used by businesses to produce goods and services, like tools, buildings, vehicles, machinery, and equipment), as well as consumer goods. Consumer goods that have a long life span (i.e., over three years) and are used over time are considered durable goods. Examples include vehicles, appliances, and technology.

Is a House a Capital Good?

A house can be a capital good if it's used by a business to produce goods and services. Just like tools, vehicles, machinery, and equipment, buildings can also be capital goods. A clear example would be a hotel. In most scenarios, however, a house would be a consumer good, because it is purchased primarily to reside in.


Article Sources

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  1. U.S. Consumer Product Safety Commission. "Who We Are—What We Do For You."

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