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Capital Goods vs. Consumer Goods: An Overview
Capital goods and consumer goods are economic terms that classify goods based on how they’re used. Capital goods are physical, man-made assets businesses use to produce other goods or services. In contrast, consumer goods are final products purchased for personal use and have no further productive application.
The same physical item can be classified as either a capital or consumer good depending on how it’s used. For example, a riding lawn mower used by a homeowner is a consumer good, but the same mower used by a landscaping company is a capital good.
Key Takeaways
- Capital goods are man-made products used by a business to produce consumer or other capital goods.
- Consumer goods are products used by consumers.
- Capital goods include tools, machinery, equipment, and buildings.
- Consumer goods include food, clothing, vehicles, and appliances.
- The same physical good could be either a consumer or capital good, depending on whether 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 tangible assets used by a business to produce goods or services for consumer goods or use by other businesses. They are generally durable goods that can be used more than once. The most common capital goods are property, plant, and equipment (PPE). Natural resources not modified by human hands are not considered capital goods.
Businesses accumulate capital goods and put them to use to produce the goods and services they sell. In other words, capital goods make it possible for companies to produce goods, often at a higher efficiency level.
Consumer Goods
A consumer good is any good purchased for consumption and not used later to produce another consumer good. Consumer goods are sometimes called final goods because they end up in the hands of the consumer or the end-user.
Examples of consumer goods include:
- Food
- Clothing
- Vehicles
- Electronics
- Appliances.
Consumer goods fall into three categories:
- Durable goods: Long-lasting, such as appliances and furniture)
- Nondurable goods: Short-term, such as groceries and gas)
- Services: Intangible, such as haircuts and car repairs)
Important
Among the largest group of consumer goods are fast-moving consumer goods, which include nondurable goods like food and drinks.
Types of Consumer Goods
Consumer goods can be classified in four ways:
- Convenience goods: Goods consumed and purchased regularly, such as milk.
- Shopping goods: Goods that require more thought and planning, and include appliances and furniture.
- Specialty goods: Goods that are more expensive and cater to a niche market. Items such as jewelry are specialty goods.
- Unsought goods: Goods 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. They are meant to be used for production, 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 indirectly satisfy consumer needs.
| Consumer Goods vs. Capital Goods | ||
|---|---|---|
| Consumer Goods | Capital Goods | |
| Intended For | Personal consumption | Inputs for production |
| End User | Consumers | Businesses |
| Marketing | B2C | B2B |
| Examples | Clothing, food, milk, furniture, cars, gasoline | Raw textiles, unrefined wheat, milking machinery, tractors, crude oil |
Capital Goods vs. Consumer Goods Example
A capital good is a man-made product that is used in production. A pre-built computer purchased by a graphics design business is a capital good. Additionally, the components of that computer are capital goods because they were used to build a computer designed for commercial use.
The same manufacturer could sell the same computer for home use. This computer would be a consumer good, even if it had the same components as the one sold to the graphics design business. Capital and consumer goods can be the same or different products; the distinction lies in how the goods are used and who uses them.
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 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.
What Are Fast-Moving Consumer Goods?
Fast-moving consumer goods (FMCG) are cheaper products that sell quickly, such as milk, gum, fruit and vegetables, soda, beer, and common drugs like aspirin.
The Bottom Line
The products you buy in stores or online are consumer goods. These are intended for personal use or consumption and are sold by businesses to individuals or households. Capital goods, on the other hand, are those goods that businesses buy to make other goods, including consumer goods. These would include things like machinery, raw materials, and specialized vehicles used on the job.
