Examples of Capital Goods

In economics, there exist three elementary factors of production - land, labor and capital. (The capital in this case refers to capital goods, and should not be mixed with financial capital.) In Marxian economics, capital goods refer to the means of production which are used by individuals and organizations for the production of goods and services. Another definition, which is much more simple, states that capital goods are man-made resources which are needed to produce goods or services. These definitions are no doubt technically correct, but there is a lot more to learn about this economic concept beyond the simple one line definitions mentioned above.

What are Capital Goods?

The term, 'capital goods', can be used for durable goods (such as machinery and factories) that can be used to produce other goods as well as non-durable goods (i.e. the raw material) which is consumed in course of production of other goods and services. At times, capital goods are also referred to as producers' goods owing to the fact that they are used for the production of functional goods and services. As opposed to consumer goods which can be directly purchased by the consumers for their personal use, capital goods are products which are not meant for consumption. Instead they are meant for the production for intermediate consumption by the end user.

Capital goods do not include natural resources (such as land or minerals) or human capital (i.e. the intellectual and physical skills of humans). The purchase of these goods, which amounts to investment, is referred to as capital expense. It wouldn't be surprising if you find all this a bit difficult to digest. In such circumstances, you can go through some examples given below which will make the concept even more simple.

Examples of Capital Goods

If you understand the simple fact that capital goods are those which are used in production of other goods and services, you will come across several examples of the same around you. One of the best example is machinery used in production sector. Everybody is fond of chocolates. While chocolates happens to be consumer goods, the machinery which is used for the production of these chocolates is a capital. Similarly, the production unit or factory wherein this chocolate is produced is also a capital.

Machinery qualifies as capital goods as long as it is used in production of other goods and services, but that is not always the case. A car, even though it is a machine, cannot be categorized as a capital good owing to the fact that it is not used in production of other goods or services. On the other hand, huge trucks which are used at construction sites qualify for capital goods because they are used in construction which is production of something. Similarly, other construction material which is used for development of building, bridges, etc., also amounts to capital in economics.

Even simple tools which a carpenter uses to build furniture, are capital goods as they are used in the production of furniture. However, a cabinet built by this carpenter using this very tools cannot be considered to be capital, owing to the fact that the cabinet is used for storing things and not for production of something. In other words, the cabinet used to store things and the car used to facilitate transportation are consumer goods which are produced using capital goods like tools and machinery.

While these capital goods examples must have made you realize what this factor of production means, you also need to make a note of the fact that some capital goods used in manufacturing of objects double up as consumer goods for layman. Multi-utility vehicles, for instance, are capital goods when used in production sector, but become consumer goods when they are used by the owner for personal use.