Capital Goods - Definition, Types and Examples (2023)

Capital goods are those products or goods that are bought and then again used by businesses or companies for producing consumer goods or offering services that are finally used by consumers. These types of goods are generally viewed as fixed products that are not handily converted into cash.

As one of the key factors of production, capital goods are the inputs businesses use for creating outputs that consumers might use. It is one of four fundamental elements of production along with land, labor, and entrepreneurship. But unlike the other three factors, capital goods comprise things that are made by human beings.

Table of Contents

What are Capital Goods?

Definition: Capital goods are defined as man-made products or goods that are further used by businesses for producing some other types of products or services. Such goods could incorporate machinery, tools, devices, buildings hardware, etc.

Capital goods can also be understood as any tangible assets that a business can use to make a product or service that further can be an input for different organizations or businesses to deliver goods for consumer uses.

Key Takeaways

  1. Capital goods are otherwise called intermediate goods, economic capital, or durable goods.
  2. The most well-known capital goods examples can be PPE means property, plant, and equipment. In addition to these, a wide variety of fixed assets like tools, hardware, gear, etc.
  3. Here, you need to understand that capital goods are not the same as financial capital which refers to the funds organizations use for developing their organizations
  4. Many natural resources that are not modified by human beings are not viewed as capital goods
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Understanding Capital Goods

As per the three primary factors of production, capital goods along with land and labor are basic elements of producing any product. This characterization began during the classical economics period and has stayed the prevailing technique for classification.

The concept of a capital good is additionally called complex product systems (CoPS) and is understood as the method of production. As per the economic concept of capital goods, such goods refer to the heterogeneous commodities that comprise specific attributes in the form of durable goods utilized in the production process of products or services.

These goods are the specific types of economic goods that are also tangible property. All in all, such goods are used for producing specific types of products or services as per the specific needs of the final consumers within a specific period.

Hardware, devices, structures, PCs, or different sorts of gear that are crucial for the production of different things for sale will come into the category of such types of goods. A capital good owner can be people, families, partnerships, corporations, companies, or states. Any goods or materials that are further used for making capital goods are also understood as capital goods.

Features of Capital Goods

Capital Goods - Definition, Types and Examples (1)

Capital goods can be understood as one-of-a-kind capital-intensive goods that comprise many other types of components. Such goods are regularly utilized as manufacturing frameworks or service systems themselves.

Some of the common examples incorporate hand devices, machine instruments, servers, data centers, semiconductor manufacturing plants, oil rigs, wind turbines, and so forth. The production of such goods is regularly coordinated in projects, with a few groups working in networks or teams.

The lifecycle of such goods commonly comprises tendering, designing, engineering, procurement, producing or manufacturing, dispatching, maintenance, and (here and there) decommissioning as well. These types of products are a central point during the technical innovation process

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Most of the innovations whether they include launching a new item or giving a less expensive approach to delivering any existing products have some roles of the capital goods. These goods are a key component of the stock of capital assets or fixed capital. Hence, the capital goods sector plays a vital part in the economic analysis of development, production, and distribution of income.

How Do Capital Goods Work?

Till now it is clear that any man-made durable good that can be utilized in business is a capital good. So, when it comes to their working, you need to understand that capital goods in contrast to consumer goods are utilized for another business or company or production process.

However, capital goods don’t go straight into the assembling of other products, as those goods are designated “raw materials”.

Instead, a capital good will be an integral part of the most common way of making other products or offering services. Hence, the examples of these goods incorporate structures, furniture, tools, machines, etc. All of these assist with driving economic work in a result-driven manner.

The process of advancements and innovations in capital goods frequently drive business development and can make new kinds of manufacturing or blue-collar jobs positions. While making new capital products, organizations or companies ask laborers to master new abilities and skillsets. Such skilled laborers will for sure be then in high demand in their industry.

In the US, monthly durable goods orders report estimates capital goods production. It is quite possibly the main economic indicator. The U.S. Census Bureau gives the report of durable goods, as it is involved in surveying organizations or companies that transport $500+ million worth of products each year. Such organizations or companies might be members of large corporations and incorporate single-unit manufacturers in 92 industry classifications.

The core capital goods are one of the leading economic indicators that tell how efficiently U.S. businesses are performing economically. At the point when companies request more capital goods, it suggests that they anticipate that production should go up there further shows that the economy and GDP would grow effectively.

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Types of Capital Goods

It is not mandatory that capital goods will be just fixed assets like assembling or manufacturing equipment or machinery. The contemporary electronics industry creates a wide assortment of gadgets that come into the category of capital products. Such goods can go from small wire harness assemblies to air-purifying respirators as well as high-resolution computerized imaging frameworks.

Capital goods are likewise created for a wide variety of service businesses. For instance, hair clippers that hair specialists use paints that painters use or musical instruments that performers play are among the many kinds of capital goods that service providers buy.

Here, you also need to pay heed to the core capital goods that are a class of capital goods excluding the aircraft and goods created for the Defense Department. The monthly Advance Report onDurable Goods Orders of Census Bureau incorporates information for purchases of core capital goods- otherwise called Core CAPEX for capital expenditure.

Another such type of goods can be durable goods that are the products having expected useful existence of at least three years.

Examples of Capital Goods

Capital Goods - Definition, Types and Examples (2)

Following are some of the key examples of capital goods that are used in the various industries, plus they are also examples of goods that are both capital goods and consumer goods-

1. Capital Goods

Different types of factories or assembly line pieces of equipment that are used for manufacturing cars and trucks along with the machines and technology are the common examples of capital goods. In addition to these, a wide range of infrastructures like cable and broadband lines or trains also come into the category of such goods. Even the coffee machines used by a coffee shop will also be capital goods.

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2. Both Capital and Consumer Goods

Let us now have a look at some of the goods that can be capital as well as consumer goods like automobiles that delivery companies use would be a capital good, but when they are bought for a family, they can be included in the category of consumer good.

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When an oven is used by a restaurant then it will be a capital good but when it is used by a user, it can be understood as consumer good. In the same manner, computers can also be used by consumers as well as companies.

Capital Goods vs. Consumer Goods

Capital goods unlike consumer goods are not normally sold to consumers or end customers. Instead, they are used for producing other goods that may be sold to consumers. In addition, you may also find capital goods that can likewise be consumer goods as well, for example, planes that airlines use but also some rich consumers can also use them.

On the other hand, consumer goods are those finished goods or products that end customers or consumers purchase. These products can be of a wide range and some of the common examples incorporate clothes, appliances, milk, etc.

Differences between Capital & Consumer Goods

  1. The motivation behind using capital goods is to help the production of other products that will further be intended for final investments, while consumer goods are purchased for individual and final consumption.
  2. Mostly, companies, businesses, and manufacturers purchase capital goods while end-users or consumers buy consumer goods
  3. Consumer goods are related to their direct demand, as consumers’ needs are directly fulfilled by them while capital goods incorporate a derived demand as they fulfill the needs of the consumers indirectly
  4. The cost of capital goods is set by companies while on the other hand the cost of consumer goods is set by suppliers
  5. To sell capital goods, b2b marketing strategy comes into play while for consumer goods, b2c marketing strategies are used to sell consumer goods

Is a House a Capital Good?

A house may be considered as a capital good if a business uses it for producing any kinds of products or services for example hotels. But in general cases, houses are considered as consumer goods because they are primarily purchased for residing in.

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Now, we hope you would have understood that capital goods are the fixed or tangible assets that businesses purchase to further use them for producing finished products or consumer goods.

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These goods are not readily convertible into cash, as one business produces them to help other businesses to make consumer goods.

After understanding how would you define capital goods? How useful do you find them in the economic growth of a country?


What is capital goods and its categories? ›

Capital goods are physical assets that a company uses in the production process to manufacture products and services that consumers will later use. Capital goods include buildings, machinery, equipment, vehicles, and tools. Capital goods are not finished goods, instead, they are used to make finished goods.

What would be an example of a capital good? ›

Key Takeaways

Capital goods include items like buildings, machinery, and tools. Examples of consumer goods include food, appliances, clothing, and automobiles.

What is capital goods in simple words? ›

Capital goods are the assets used by businesses in the course of producing their products and services, and can include buildings, machinery, tools and equipment.

What is also called as capital goods? ›

Machinery, tools, buildings, computers, or other kinds of equipment that are involved in the production of other things for sale are capital goods. The owners of the capital good can be individuals, households, corporations, or governments. Any material used to produce capital goods is also considered a capital good.

What are the 4 types of capital? ›

The four major types of capital include working capital, debt, equity, and trading capital. Trading capital is used by brokerages and other financial institutions.

What are the 7 types of capital? ›

The seven community capitals are natural, cultural, human, social, political, financial, and built. Natural Capital includes all natural aspects of community. Assets of clean water, clean air, wildlife, parks, lakes, good soil, landscape – all are examples of natural capital.

What are the two types of capital goods? ›

These four factors are collectively known as the primary factors of production. Capital goods can be said to be the goods that can be used to increase production. The most common types of capital goods are referred to as plant, property, and equipment.

What are the two types of capital examples? ›

Economic or financial capital entails monetary funds and investments like equity, debt, or real estate. Human capital and social capital augment the purely economic rationale behind capital and together better explain how business and economic growth really work.

Which of the following is not a capital good? ›

Option 1 is correct, Food and Clothing. Food and Clothing is part of Non-durables consumer goods. Capital goods are tangible assets that one business produces which in turn gets used by the second business to produce consumer goods. Examples include vehicles, machinery, equipment, buildings, vehicles, tools.

What is the purpose of capital goods? ›

Capital goods can include machinery, equipment, tools, and buildings. They can also include intangible assets such as patents, copyrights, and trademarks. The purpose of capital goods is to increase the productivity of a business. By using capital goods, businesses can produce more goods or services in each period.

Is a house a capital good? ›

Capital goods have a useful life of over one year and are considered tangible assets. Examples of capital goods include buildings, vehicles, machinery, and equipment. Because capital goods have a long lifespan, they are depreciated rather than expensed.

What are new capital goods? ›

Capital goods are tangible items that companies use in the production of goods and services. Unlike raw materials, which manufacturers might also use in the production process, capital goods are man-made. They include equipment, machinery, and tools.

What industry is capital goods? ›

The capital goods industry refers to a group of companies that manufacture and distribute machinery and tools. Other companies use these machines and tools to make their own products. The capital goods industry sector of any nation is closely related to its prevalent economic conditions.

Are raw materials capital goods? ›

Capital goods are different from raw materials.

Both are used during the production process. However, the raw materials will be further processed and converted to become output. Therefore, they will be part of the output. On the other hand, capital goods do not make up or form output.

What are the 8 types of capital? ›

The eight capitals: intellectual, financial, natural, cultural, built, political, individual and social.

What are the 3 sources of capital? ›

One major source is the savings of the owners of private businesses, and the undistributed profits of companies. A second major source is borrowing, either by selling bonds or borrowing from banks and other financial intermediaries. A further source of capital is selling equity shares.

What are the ten types of capital? ›

Different types of capital
  • Financial capital. ...
  • Economic capital. ...
  • Constructed or manufactured capital. ...
  • Human capital. ...
  • Social capital. ...
  • Intellectual capital. ...
  • Cultural capital. ...
  • Experiential capital.
Mar 1, 2021

What are the 5 features of capital? ›

a) Capital is man-made (artificial) b) It increases the productivity of resources c) Supply of capital is elastic. It can be produced in large quantity when its requirement increases. d) Capital is perishable as it can be destroyed. e) Capital is highly mobile.

What does capital mean example? ›

Capital is a broad term for anything that gives its owner value or advantage, like a factory and its equipment, intellectual property like patents, or a company's or person's financial assets. Even though money itself can be called capital, the word is usually used to describe money used to make things or invest.

What are examples of capital in business? ›

In business, capital means the money a company needs to function and to expand. Typical examples of capital include cash at hand and accounts receivable, near cash, equity and capital assets. Capital assets are significant, long-term assets not intended to be sold as part of your regular business.

Which is not an example of capital? ›

Money is not capital as economists define capital because it is not a productive resource. While money can be used to buy capital, it is the capital good (things such as machinery and tools) that is used to produce goods and services.

What are the 3 types of goods? ›

There are four different types of goods in economics, which can be classified based on excludability and rivalrousness: private goods, public goods, common resources, and club goods.

What is an example of a capital good quizlet? ›

Factories and machines are examples of: Capital goods.

Is engine of car a capital good? ›

A machine used to produce a Motor vehicle is a capital good whereas a motor vehicle itself is a consumer durable good.

What is the difference between consumer goods and capital goods? ›

Consumer goods are defined as the goods that are used for final consumption, i.e. the goods are not used for further processing. On the other hand, capital goods are those goods that are used for future production by the manufacturers, rather than by the consumers for final use.

What is the difference between capital stock and capital goods? ›

Capital goods refer to those final goods that are purchased by the producers (firms) for using them in the process of production. They do not require further processing. On the other hand, capital stock refers to the total physical capital available with an enterprise. For example: plant, machinery etc.

Is inventory a capital good? ›

Inventory is part of a company's working capital. Inventory is classified as current assets because it is typically consumed within a year as part of the production process. Inventory incurs warehousing costs and is considered opportunity cost.

Is sugar a capital good? ›

Some things can be both consumer goods and capital goods. For example, if a bakery buys sugar to produce pies, the sugar is a capital good.

Is air conditioner a capital good? ›

(c) Air- conditioner in a house : It is a consumer good because it is used for satisfaction of a want by a household. (a) A car used as a taxi : It is a capital good because it is used for producing services for generating income .

What is core capital goods? ›

Capital goods are the goods that companies use to make products that they then sell to the public. Types of capital goods include buildings, machinery, vehicles, large tools, and equipment. Capital goods are not finished goods but are used to make finished goods, as such, they are not purchased by the average consumer.

What are the features of capital goods? ›

Capital goods are tangible assets a company needs for manufacturing products that will later be sold to customers. They entail tools, buildings, equipment, or the machinery necessary to make final products.

What are the 2 categories of capital? ›

In business and economics, the two most common types of capital are financial and human.

What are the 5 types of capital? ›

It is useful to differentiate between five kinds of capital: financial, natural, produced, human, and social. All are stocks that have the capacity to produce flows of economically desirable outputs. The maintenance of all five kinds of capital is essential for the sustainability of economic development.

What are the categories of goods? ›

There are four different types of goods in economics, which can be classified based on excludability and rivalrousness: private goods, public goods, common resources, and club goods.

What are the 8 forms of capital? ›

The eight capitals: intellectual, financial, natural, cultural, built, political, individual and social.

What are the 3 types of capital market? ›

The term capital market includes the stock market, bond market, and related markets.

What are 10 examples of capital resources? ›

What are capital resources?
  • Office buildings.
  • Production processes.
  • Tools.
  • Vehicles.
  • Manufacturing facilities.
  • Heavy machinery.
  • Proprietary software.
  • Inventory.
Aug 17, 2021

What are the 6 sources of capital? ›

Some of the top ways to raise capital are through angel investors, venture capitalists, government grants, and small business loans. There are other methods for financing such as credit cards or invoice financing, but these should be used only if you need cash quickly and know the risks involved.

What are 10 types of goods? ›

  • Consumer Goods. The goods that consumers use for consumption purposes are consumer goods. ...
  • Producer Goods. Producer goods are raw materials or intermediate goods essential to make or produce consumer goods. ...
  • Capital Goods. ...
  • Normal Goods. ...
  • Inferior Goods. ...
  • Giffen Goods. ...
  • Substitute Goods. ...
  • Complementary Goods.

What are the 4 types of consumer goods? ›

The four categories of consumer goods are as follows:
  • Convenience goods.
  • Shopping goods.
  • Unsought goods.
  • Specialty goods.

What are 3 goods examples? ›

They are goods, which are used for consumption. For example bread, fruits, milk, clothes etc.


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