What Are Capital Goods

Capital goods are those goods which are used by firms to produce new products which can be used to accomplish the requirement of customers. Capital goods would consist of items such as industrial buildings, equipment, and heavy machinery. Capital goods also include office buildings, highways, and various government installations. Capital goods are not present in nature; they are produced by human beings. There is no natural source of these goods like land, sea, mountains, and valleys from where they can be extracted. The intellectual, physical power of human-beings helps to produce capital goods. Labor plays imperative role in producing capital goods. Capital goods are acquired by a society by saving wealth which can be invested in the means of production.

Capital goods, then, are products which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. These types of goods are important economic factors because they are key to developing a positive return from manufacturing other products and commodities. Manufacturing companies also use capital goods. Capital goods help their company make functional goods to sell individuals valuable services. As a result, capital goods are sometimes referred to as producers’ goodsmeans of production.

There is major difference between “capital goods” and “consumer goods”. Consumer goods are directly purchased by customers to fulfill their needs but capital goods are not purchased directly though they are used to produce those goods which can be purchased directly.

Cars, bikes etc all are consumer goods because they are bought for personal use but machines or equipments that are used to manufacture cars are capital goods. Similarly, a chocolate candy bar is a consumer good, but the machines used to produce the chocolate candy bar are considered capital goods.