What are capital goods?

The term goods refer to all those objects, material or not, that have some value for those who own it. However, since this value can vary depending on the purpose given to said asset, there is a general division into capital goods, intermediate goods and production or consumption goods.

Although it is a less used classification, goods can also be classified according to their price or income behaviour in normal goods, inferior goods or Giffen goods. This is that certain goods rise or fall in price according to the demand, and according to their behaviour they will be denominated.

Even, according to tenure, there are other classifications of goods, for example, public goods, substitutes, tradable, among others.

However, for purposes of economy, the largest references are made to the former, that is, capital goods, intermediate goods and consumer goods.

What differentiates capital goods from production goods?

To differentiate one from the other, it is convenient to establish first of all that consumer goods derive from capital good, which means that, without the latter, it is impossible for consumer goods to be generated.

Specifically, a capital asset comes from the group of all those objects (equipment, real estate, machinery …) that a person or company uses to produce other goods that will be destined for consumption, hence its name.

For investment purposes, it is important to take into account the distinction between the two, since it is assumed that the acquisition of a capital good represents something that can be used to produce and its value is subject to the depreciation recorded within the production system.

On the other hand, consumer goods may represent an expense or a liability, because their purpose is to satisfy the immediate need of the consumer.

For example, a refrigerator or freezer can be used to make ice cream, so the refrigerant equipment is a capital asset while ice cream is considered the consumer good. For investment purposes, which one has more value? The equipment or ice cream?

For purposes of greater understanding, think that for many ice creams that you buy, you will never be able to obtain refrigeration equipment and sooner or later they will end up. In contrast, the refrigerant equipment has a longer shelf life and you can generate more ice cream

The same happens when buying a vehicle, for example, a car. The use to which you destine this purchase will determine the type of good.

If you bought the car to take the children to school, go to work or walk with the family you should consider it as a consumer good. However, if this car was purchased to carry the pizzas that you make in your business there is no doubt that this vehicle is part of your capital assets.

Is money a capital good or a consumer good?

Although money tends to be associated with the word capital, its classification depends on the way it is perceived, since it is to be noted that even when money is not considered as a tool or input used to produce things, generally as it is a matter of element that serves to pay for labour or acquire the necessary elements for production enters the group of capital good.

However, money could also be considered as an intermediate good. In fact, it is very normal for it to be transformed into a commercial product, as is the case of financial entities dedicated to loan management.

On the other hand, capital savings can generate greater investment in goods for production and with them a higher level of wealth.

What is the Importance of capital assets?

Societies to achieve better living standards must achieve greater production and this is only possible through the application of a greater quantity of means of production.

Consequently, to the extent that the population allocates greater efforts to the acquisition and destination of goods for production, a greater quantity of consumer goods will be produced and, as a result, the quality of life of said population will increase.

In short, the wealth of a person or society is given by the wealth represented in the quantity of these goods as this means the increase in their productivity.

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