In economics, goods are things that can satisfy human needs and desires. Primarily in modern economics, there are 2 types of goods: Consumer goods and Capital goods.
Consumer goods are defined as consumable goods which do not need further processing. Consumers are also able to use or consume these goods immediately.
For example, snacks, bread, mineral water, toothpaste, shampoo, coffee, cookies, tea and many more.
Capital goods are those goods that need further processing and usually go to production from manufacturers. They usually come in massive quantities, and examples include commodities such as wood, log, gold, and half-raw materials.
People usually store them in inventory or warehouse as stock for further processing or investment.
Key Takeaways
- Consumer goods are goods that individuals use for personal use or consumption.
- Capital goods are goods that are used in the production of other goods and services.
- Consumer goods are generally used up or consumed over time, while capital goods are durable and long-lasting.
Consumer Goods vs Capital Goods
The difference between Consumer Goods and Capital Goods is that consumer goods are those used by consumers and do not have any future productive use. In contrast, capital goods are those used by one business to create products that can be used by another business to create consumer goods.
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Examples of consumer goods are clothing, vehicle, and food and examples of capital goods are machinery, property, and tools.
The core and only point of difference between Consumer goods and Capital goods is their use. Example of manufacturer brands which produce Consumer goods is Indofood, Wings, ITC, Orang Tua, Unilever, Lions, Coca-Cola and many more.
They produce goods that are commonly used by the majority of people. The consumer goods from these companies include items like candies, wafers, toothpaste, sweet water, soap, cigarette, ready to eat food.
In the modern era, many manufacturers now innovate and change their category into fast-moving consumer goods because the cycle from consumers to production and delivery is indeed fast.
The marketing team sets sales strategies by cooperating with retailers and wholesalers to make their products available and reachable to everyone.
While for Capital goods, we cannot consume them directly; they need to be processed by the manufacturer before they become consumable. Example of manufacturers includes rail-way companies, property developers, woodworking factories, oil and gas companies, and most likely state-owned companies.
Comparison Table
| Parameters of Comparison | Consumer Goods | Capital Goods |
|---|---|---|
| Meaning | Goods consumed by an end-user | Goods processed to produce consumer goods |
| Marketing | Business to consumer | Business to business |
| Purpose | Bought for personal consumption | Bought for making other products or finished product |
| Buyer | Consumers | Manufacturers |
| Demand | High | Less |
| Storage or Saving | Home storage (refrigerator, desk, kitchen) | Warehouse, inventory |
What are Consumer Goods?
In Economics, every tangible product or commodity produced to satisfy and fulfil market needs is called a Consumer good. It could also be classified into three types: durable goods, nondurable goods, and services.
Durable goods, often three years or more, usually have a significant life span, like a battery, remote control, furniture, and most likely electronics.
While non-durable goods will expire in months to 1 year, such as food and beverages, clothes, soap, and things that house-chores need.
Some may think that services are not part of consumer goods, but that is untrue. Consumer-facing services are intangible products or actions consumed simultaneously.
Examples include haircuts, auto repair, landscaping, sales marketing, and home or web designing.
What are Capital Goods?
Meanwhile, Consumer goods end after delivery to the end-user, and Capital goods still need to be processed before they can be used. The user of capital goods is usually the other companies that later will produce consumer goods (this is what we call the business to business B2B).
There are 3 types of Capital goods: Property, Plant, and Equipment (fixed asset).
Capital goods include buildings, factories, machinery, vehicles, etc. And examples of Capital goods used for a service business are hair masks used by hairstylists, a computer used by a web designer, etc.
Like Consumer goods, capital goods are also classified as tangible assets because they can be measured, have monetary value, and usually have a physical form.
Main Differences Between Consumer Goods and Capital Goods
Usage and consumption
The main differences between these 2 types of goods are in their use. Consumer goods could be directly used without any further process, yet Capital goods need more processing.
Although both products are produced for use, they are produced for different purposes.
Manufacturers deploy capital goods to produce finished products that we call consumer goods, and consumer goods are usually used for daily or general consumption directly.
Saving and storage
The way of saving both of these goods is also different. Consumer goods are saved in refrigerators, cabins or desks and the capital goods are stored in inventory or warehouse.
The storage amount of capital goods is most likely more significant than consumer goods.
Demand and pricing
Consumer goods are usually cheap and depend on market demand. Capital goods are costlier, but the price is more stable because of lesser demand.
- https://link.springer.com/chapter/10.1007/978-1-349-81529-6_9
- https://academic.oup.com/oep/article-abstract/15/3/217/2360262
- https://www.ingentaconnect.com/content/mcb/007/1993/00000007/00000003/art00005
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
