Capital Goods

Published Jan 25, 2023

Definition of Capital Goods

Capital goods are physical assets used to produce goods and services. That means they are used in the production process to manufacture products and services and are not sold directly to consumers. Examples of capital goods include machines, tools, buildings, and other production equipment.

Example

To illustrate this, let’s look at a small bakery. The bakery needs a variety of capital goods to produce the products it sells to its customers. That includes an oven, a mixer, a refrigerator, and other equipment. In addition to that, the bakery also needs a building to house all the equipment and a delivery van to transport the goods to the customers. All of these assets are considered capital goods because they are tangible and are used in the production process.

Why Capital Goods Matters

Capital goods are essential for any production process. Without them, it would be impossible to produce goods and services. That means they are a key factor in economic growth. By investing in capital goods, companies can increase their productivity and, as a result, their profits.

In addition to that, capital goods also benefit society as a whole because they enable advanced research and development, innovation, and thereby an increase in the collective wealth of society.