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.
KEY TAKEAWAYS
- Capital goods are physical assets that a company uses in the process to manufacture products and services that consumers will later use.
- Capital goods include fixed assets, such as buildings, machinery, equipment, vehicles, and tools.
- Capital goods are also produced for the service sector, including hair clippers used by hairstylists and coffee machines for coffee shops.
Understanding Capital Goods
Capital goods are called tangible assets because they are physical in nature. Capital goods are assets that companies use to produce products that other businesses can use to create finished goods. Manufacturers of automobiles, aircraft, and machinery fall within the capital goods sector because their products are subsequently used by companies involved in manufacturing, shipping, and providing other services. In other words, capital goods don’t create satisfaction (called utility in economics) for the buyer per se but instead are used to produce the final product, which does create satisfaction.
