What are Consumption Goods and Capital Goods?

Goods: In Economics, goods are defined as any physical object, natural or man-made that commands a price in the market.

 

Classification of Goods

Broadly, goods are classified in two ways:

I. Consumption Goods and Capital Goods

II. Final Goods and Intermediate Goods

 

I. Consumption Goods and Capital Goods

A. Consumption Goods/Consumer Goods: Goods purchased for satisfaction of wants are called consumption goods. Eg: purchase of food, clothes, furniture etc. by families are called consumption goods. 

 

Consumption Goods are further classified into two sub-categories:

(i)  Durable

(ii) Non-durable goods.

 

(i) Consumer Durable goods:  Goods which are used time and again over a period of time are called consumer durable goods. Eg: Washing machine, T.V., cars, etc.

 

(ii) Non-durable Goods: Goods which get exhausted in a single act of consumption are called single use consumer goods or non-durable consumer goods. Eg: Food items, electricity, toothpaste, etc.

 

B. Capital Goods: Goods capable of being used for producing other goods are called capital goods. These goods are used for generating income. All purchases by production units such as factories, shops, commercial institutions, etc. are capital goods. Buildings, machines, equipment etc. are used for producing other goods are some example of capital goods. Such goods when self-produced are also termed as capital goods.

In other words, capital goods are those goods which are used in the process of production for several years and command high value. These goods are actually fixed assets for the producers and use of these goods lead to depreciation.  

Capital Goods are further classified into the following two sub-categories:

 

(i) Durable Capital Goods: Building, Machinery, equipment etc. providing services over time to the production units are example of Durable Capital Goods.

 

(ii) Non-Durable Capital Goods: Stocks of raw material are example of Non-durable goods. They are also called Single use durable goods.

 

Note: In classifying goods as consumption goods and capital goods, what is important is not the good itself but the use of the good. Eg. A car purchased by a family is a consumption good but if the same car is purchased by a factory, it is a capital good.

 

PRODUCER GOODS are all those goods which are used in the process of production or which are used in the production of other goods. These goods include:

                             (i) Goods used as Raw material

                             (ii) Goods used as Fixed Assets in production

 

Capital Goods only include Fixed Assets of the producers. They are durable use producer goods and goods used as Raw material are single use producer goods. Hence, ALL PRODUCER GOODS ARE NOT CAPITAL GOODS BUT ALL CAPTAL GOODS ARE PROFUCER GOODS.