Macroeconomics is a part of economics that focuses on how a general economy, the market, or different systems that operate on a large scale, behaves. Macroeconomics concentrates on phenomena like inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.
“Macroeconomics is that part of economics which studies the overall averages and aggregates of the system”. – KE Boulding
Consumption Goods
Consumption goods are the goods that satisfy the wants and needs of a consumer directly. For example, shirt, pen, bread, butter, etc. Consumption goods can be classified into four categories; namely, durable goods, services, semi-durable goods, and non-durable goods.
1. Durable Goods
The goods that consumers can use again and again over a considerable time period are known as durable goods. For example, Refrigerator, Air Conditioner, Television, etc.
2. Semi-durable Goods
The goods that consumers can use for a limited time period are known as semi-durable goods. For example, clothes, shoes, etc.
3. Non-durable Goods
The goods that are used by the consumers in one consumption only are known as non-durable goods. One cannot use these goods for more than once. For example, butter, milk, bread, chocolate, etc.
4. Services
The non-material goods which satisfy human wants directly are known as services. Services are goods that are intangible in nature and cannot be touched or seen. For example, services provided by doctors, beauty parlors, teachers, etc.
Capital Goods
Capital goods are physical assets that an organization uses in the process of production to manufacture products and services that consumers will use later. Capital goods are also known as tangible goods, as they are physical in nature. It involves buildings, machinery, equipment, vehicles, tools, etc. Capital goods are not finished goods; rather, they are used to make finished goods. It means that the capital goods are used by the firms for productive purposes in the future and have an expected life time of several years. However, these goods do not lose their identity during the production process and need replacement or repair from time to time, as they depreciate over an expected period of time. Besides, the capital goods have derived demand. It means that the demand for capital goods derives from the demand for other goods, which are produced by these capital goods.
Producer goods are goods that are used by the producers. However, all the producer goods are not capital goods, and can be of two types: Single-use Producer Goods and Capital Goods.
Single-use Producer Goods are goods that include raw materials like wood, coal, etc., and as they cannot be used repeatedly in the production process, they are not capital goods.
Capital Goods are goods that include fixed assets, such as plant and machinery, etc., and can be used repeatedly in the production process.
Therefore, all capital goods are producer goods, but all producer goods are not capital goods.
Classification of Goods as Consumption Goods and Capital Goods
There is no clear-cut way of classifying the goods as consumption goods and capital goods. It means that some goods can be capital goods as well as consumption goods, it depends on how these goods are used in the end. If a good is used to produce another good, then it is a capital good; however, if a good is consumed by a consumer directly, then it is a consumer good. For example, if machinery is used by a firm to produce more goods, then it is a capital good. If the same machinery is used by a consumer directly to satisfy his/her wants, then it is a consumption good. However, if the firm purchases the machinery for resale purposes, then it will be considered an intermediate good.
Consumption Goods v/s Capital Goods
| Basis | Consumption Goods | Capital Goods |
|---|---|---|
| Meaning | Consumption goods are the goods that satisfy the wants and needs of a consumer directly. | Capital goods are physical assets that an organization uses in the process of production to manufacture products and services that consumers will use later. |
| Satisfaction of Human Wants | Consumption goods directly satisfy human wants and thus have a direct demand in the market. | Capital goods indirectly satisfy human wants and thus have derived demand. |
| Expected Life | Most consumption/consumer goods, except durable goods have limited expected life. | Generally, capital goods have an expected life of more than one year. |
| Production Capacity | Consumption goods do not promote the production capacity of a firm. | Capital goods help a firm in raising production capacity. |
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