In economics, we learned about consumer goods and capital goods. However, to some people who have been out of school for a long time, the difference between the two has become vague. If you are one of the confused ones, you’re in the right place. In this article, we will explore the difference between consumer goods and capital goods.
|Consumer Goods||Capital Goods|
|Products and services that are purchased and used by ordinary people for their consumption||Products and services that are used by companies and firms to produce goods and increase productivity|
|Also called “final goods”||Also called “real capital,” “economic capital,” durable goods,” or “intermediate goods”|
Consumer goods are products and services that are purchased and used by ordinary people for their consumption. These goods are not used in making another consumer good at a later time.
Also called “final goods,” consumer goods satisfy the needs and wants of the public. Common examples of consumer goods are:
- Consumer durables (furniture, appliances, jewelry, gadgets and electronics, personal and family vehicles)
- Consumer non-durables (fuel, food, drinks)
- Consumer services (hotels, salons, spas, barbershops, boutiques)
On the other hand, capital goods are products and services that are used by companies and firms to produce goods. They are also known as “real capital,” “economic capital,” “durable goods,” or “intermediate goods.”
Common examples of capital goods are:
- Tools, machinery, or hardware
- Construction vehicles
Capital goods are man-made durable goods, so financial capital and natural resources do not belong in this category.
Capital goods do not have a direct impact on a firm’s revenue; however, their role in the economy is vital as they increase the productive capacity of a company or a country. For instance, a person who uses a chocolate-making machine can produce more chocolates in a short span of time than a person who makes chocolates by hand.
It is important to note that a simple consumer good can also be a capital good depending on how it is utilized. For instance, a chocolate bar is considered a consumer good if it is immediately eaten after purchase, but it may also be considered a capital good if it is used to make chocolate ganache which is then sold commercially.
Consumer Goods vs Capital Goods
What, then, is the difference between consumer goods and capital goods?
Consumer goods or “final goods” satisfy the needs and wants of the people. These goods are for personal consumption and are not used to produce other goods. Capital goods, on the contrary, are used by firms and companies to produce other goods and to increase their productivity. They are also called “real capital,” “economic capital,” “durable goods,” or “intermediate goods.”
A consumer good can be considered a capital good if it is used to produce another product or service which is made available commercially.