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Differences between Consumption and Capital Goods | Micro Economics

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Differences between Consumption and Capital Goods are:

All final goods (i.e., goods which are meant for final use) produced in the economy are of two kinds—consumption goods and capital (investment) goods.

Final Goods

(i) Consumption goods:

Goods which are consumed for their own sake to satisfy current wants of consumers directly are called consumption (or consumer) goods.

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For example, food, shirt, shoes, cigarettes, pen, TV set, and radio, etc. are all consumer goods because when used, they satisfy immediate needs of the consumers. Similarly, services rendered to consumers by hotels, retailers, barbers, etc. are consumer services. And so are the services of police, courts, parks, street lighting consumed collectively by the people.

Consumption goods sustain the basic objective of an economy, i.e., to sustain the consumption of entire population of the economy. Human beings must consume in order to survive and work. It is consumption of basic necessities of life—food, clothing, shelter that make us function.

Consumer goods are further classified into durable and non-durable goods. Durable goods are those which can be used in consumption again and again over a considerable period of time, e.g., chair, car, fridge, shoes, TV set. Non-durable goods are like single use goods which are used up by consumers in a single act of consumption, e.g., milk, fruits, matches, cigarettes, coal, etc.

(ii) Capital goods:

Capital goods are fixed assets of producers which are repeatedly used in production of other goods and services. Alternatively durable goods which are bought for producing other goods but not for meeting immediate needs of the consumer are called capital goods. These goods are of durable character, e.g., tools, implements, machinery, plants, tractors, buildings, transformers, etc.

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Such goods are used for generating income by production units. Here, the points to be noted are:

(i) While they make production of other goods possible, they themselves do not get transformed (or merged) in the production process,

(ii) Capital goods undergo wear and tear and need repairs or replacement over time,

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(iii) They are the backbone of production processes as they aid and enable production to go on continuously Capital goods are purchased by the business enterprises either for maintenance or addition to their capital stock so as to maintain or expand the flow of their production.

Clearly, there is a trade-off between consumer goods and capital goods. If an economy produces more of capital goods, it is producing less of consumer goods. But the more the capital goods are produced now, more will be the productive capacity of the economy in future. In return, a larger volume of consumer goods can be produced in future.

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