Difference Between Capital And Consumer Goods

Goods are commodities that are capable of satisfying human wants and desires, according to economic theory. Consumer goods and capital goods are the two main classifications of goods.

 

The distinction between capital and consumer goods is based on how they are used. Any good used to help increase future production is referred to as a capital good. Consumer goods are any goods that are used by consumers but will not be used productively in the future.

 

A consumer good is anything that is bought for personal use and not to be used in the production of another consumer good. Because they end up in the hands of the consumer or end user, consumer goods are also known as final goods. Consumer goods are divided into Consumer Durables (such as televisions, cars, and refrigerators) and Consumer Non-durables (such as clothing) (e.g. Bread, Biscuit etc.). Consumer durables have a longer shelf life than nondurables.

 

•    Milk and other convenience foods are consumed and purchased on a regular basis.

 

•    Appliances and furniture are examples of items that require more thought and planning when shopping.

 

•    Specialty items are usually more expensive and target a specific market. This category includes things like jewellery. 

 

•    Unwanted goods are only purchased by a small percentage of consumers to meet a specific need. This category includes life insurance.

 

Capital goods are goods that are used as inputs in the production of other capital goods, as well as consumer goods and services. Plant and machinery, equipment, furniture, vehicles, and office buildings are examples of capital goods.

 

Property, plant, and equipment (PPE), or fixed assets like buildings, machinery and equipment, tools, and vehicles, are the most common capital goods. Financial capital, on the other hand, refers to the funds that companies use to expand their businesses. Natural resources that have not been altered by human hands are not considered capital goods, despite the fact that they are both factors of production. Businesses rely on savings, investments, or loans to accumulate capital goods.

 

Capital goods are given special attention by economists and businesses because of their importance in increasing a firm's or country's productive capacity. To put it another way, capital goods enable businesses to produce at a higher level of efficiency. Consider two workers who are digging ditches. The first worker is holding a spoon, while the second is operating a tractor equipped with a hydraulic shovel. Because he has a better capital good, the second worker can dig much faster.

 

A physical good can be either a consumer or a capital good. It all depends on how it'll be put to use. A consumer good is an apple purchased at a grocery store and consumed immediately. A capital good is an identical apple purchased by a company to make apple juice. Again, the difference is in how it is used. As a result, the line of demarcation between these two types of goods is extremely thin and hazy. The only point on which the distinction between consumer and capital goods is based is their use. The term "consumer goods" is commonly used to refer to both goods and services.

 

A product that is used to make a final good or finished product is referred to as an intermediate good. Intermediate goods are traded between industries for resale or for use in the manufacture of other goods. Because they are used as inputs to become part of the finished product, these goods are also known as semi-finished products. Intermediate goods, also known as producer goods, are essential to the manufacturing process. They are transformed into a different state when they are used in the manufacturing process.

 

When it comes to the use of intermediate goods, there are usually three options. A producer has the option of producing and using their own intermediate goods. It is also possible for the producer to manufacture the goods and then sell them, which is a common practise across industries. Companies purchase intermediate goods to use in the production of either a secondary intermediate product or the finished good. All intermediate goods are inexorably either incorporated into the final product or completely reconfigured during the manufacturing process. The value of intermediate goods is included in the final good's value.

 

Consider the case of a wheat farmer. The farmer sells his crop to a miller for $100, resulting in a $100 profit for the farmer. The miller grinds the wheat into flour, which is a secondary intermediate good. The miller makes a $100 profit by selling the flour to a baker for $200 ($200 sale - $100 purchase = $100). The bread is the final product that is sold directly to the consumer. The baker sells it all for $300, netting him an extra $100 ($300 - $200 = $100). The final price of the bread ($100 + $100 + $100) is equal to the value added at each stage of the manufacturing process.

 

A final good is a product that is used or consumed by the final consumer. The good (product) does not need to be processed further. A company creates a final good for the consumer's direct use. Final goods do not go through any economic transformations during the manufacturing process and are ready for consumption. Only final goods are considered when calculating Gross Domestic Product (GDP).