Differences Between Consumer Goods and Capital Goods
The primary difference between consumer goods and capital goods is their usage. Capital goods are the factors used to produce intermediate goods used by the manufacturers to make the final products. On the other hand, the consumer goods themselves are the end users’ final products for their consumption. Therefore, capital goods come ahead of consumer goods in the same value chain.
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Key Takeaways
- Capital goods are tangible assets such as property, plants, and equipment used to produce the final consumer goods. Further, consumer goods are final products such as food, clothes, vehicles, and electronic appliances purchased by end-users for consumption or their intended usage.
- Consumer goods are low-priced items compared to capital goods, which involve an investment of a large sum of money.
- Given the financial outlay, the benefits of capital goods are received over a longer period than consumer goods.
Table of contents
What are Consumer Goods?
The term “consumer goods” refers to the goods purchased for consumption by the end-users. One cannot process the goods further to produce any other goods. Thus, consumer goods are also popularly known as final goods, given that they eventually are in the hands of the intended end-users. It is to be noted that although it says consumer goods, the definition of consumer goods also includes services, given that services are intangible products consumed by the consumers. Particularly, consumer goods are goods and services that directly satisfy the consumers’ needs and wants. Some of the most common examples of consumer goods are food, clothes, vehicles, electronic appliances, etc. Consumer goods can be further classified into durable and non-durable goods.
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What are Capital Goods?
The term “capital goods” refers to the tangible assetsTangible AssetsTangible assets are assets with significant value and are available in physical form. It means any asset that can be touched and felt could be labeled a tangible one with a long-term valuation.read more used by the businesses to produce goods or services, which eventually become the raw materialRaw MaterialRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more or input for creating the final consumer goods. Hence, capital goods are also popularly known as intermediate goods. The purchase of capital goodsCapital GoodsCapital goods are man-made assets used in the manufacturing process of a product. They are used to produce the final goods that people consume daily. They are one of the four factors of production- the other three being natural resources, labor, and entrepreneurship.read more requires a large investment. Thus, it is considered an important business decision. Moreover, the benefits of capital goods are received over time, so the value of these goods is depreciated over their useful lifeUseful LifeUseful life is the estimated time period for which the asset is expected to be functional and can be put to use for the company’s core operations. It serves as an important input for calculating depreciation for assets which affects the profitability and carrying value of the assets.read more. Some of the most common examples of capital goods are fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more, such as buildings, property, plant, equipmentProperty, Plant, EquipmentProperty plant and equipment (PP&E) refers to the fixed tangible assets used in business operations by the company for an extended period or many years. Such non-current assets are not purchased frequently, neither these are readily convertible into cash. read more(PP&E), tools, etc.
Consumer Goods vs Capital Goods Infographics
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Comparative Table – Consumer Goods vs Capital Goods
| Particulars | Consumer Goods | Capital Goods |
|---|---|---|
| Definition | The end-users use these goods for their own consumption. | These goods are deployed in the production of the final goods. |
| End-user | End-market consumers directly purchase these goods. | Businesses or manufacturers buy these goods. |
| Marketing strategy | Given the end-market, business-to-consumer (B2C) marketing is used to sell these goods. | Given the end-market, business-to-business (B2B) marketing is used to sell these goods. |
| Purpose | These goods are mainly purchased for personal consumption. | These goods are purchased for manufacturing other products. |
| Demand | These goods have direct demand as they directly satisfy the needs and wants of the consumers. | These goods have derived demand as they satisfy the needs and wants of the consumers indirectly. |
| Price | These goods are usually cheaper in terms of price. However, the prices vary a lot depending on the market demand. | These goods involve an investment of a large sum of money. But the prices are stable as the market demand is not that high. |
| Benefits | The benefits derived from these goods are generally short-lived and thus don’t involve any depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more. | The benefits of these goods are derived over a period of time, and thus these goods are depreciated accordingly. |
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