Consumption goods, capital goods, final goods, intermediate goods

Steel bars used in constructing a building are consumed as construction inputs and become part of the completed structure. They do not remain as a separate tool providing repeated services to the firm. Therefore, from the construction firm’s production viewpoint, steel bars are intermediate goods. The building itself may later be a final capital asset.

When a tailor buys cloth to make a shirt for a customer, the cloth is an input in the production of a garment and tailoring service. It is transformed into, or incorporated into, the final shirt. Therefore it is an intermediate good for the tailor. In the other situations, the cloth is used directly by the final user.

The household purchases the cloth for its own domestic use, not to process it into another commodity for sale or production. Once made into curtains, it directly provides household comfort and satisfaction. Thus it is classified as a final consumption good. The same cloth could be intermediate if bought by a tailor or manufacturer as a production input.

An ambulance purchased for permanent hospital use is a durable asset that helps provide health services over many years. It is not immediately consumed, incorporated into another product, or held for resale. Therefore it is a capital good. The fact that the buyer is the government does not change the use-based classification of the ambulance.

Stationery such as paper, printer ink, and files is consumed while an office performs administrative or public services. It is not a durable asset that provides repeated services over several years, nor is it purchased for household consumption or resale. Therefore, in the production of government services, daily stationery is treated as an intermediate input.

The chip is purchased as a component for manufacturing mobile phones. It is incorporated into the finished phones and its separate identity as an input is no longer available to the manufacturer after production. Therefore, from the mobile producer’s viewpoint, the chip is an intermediate good. The completed phone may become a final consumption or capital good depending on its user.

The robot is durable equipment used repeatedly on the production line. It is not transformed into a mobile phone and is not exhausted during one production cycle. Since it supports production over a number of periods, the robot is a capital good. It is also a final capital good when bought by the manufacturer for its own productive use rather than for resale.

A consumption good is purchased for direct satisfaction of the needs or wants of the final consumer. It may be durable, such as a television, or non-durable, such as food. A good used as a production input, used only as equipment by a firm, or bought for resale is not a consumption good for that purchaser.

A billing machine bought by a shop for its own operations is durable equipment. It helps the shop provide retail services repeatedly and is not used up in making one sale. Because it is acquired for productive business use rather than for resale or personal consumption, it is classified as a capital good and represents final investment by the shop.

A permanent cinema screen is a durable asset used repeatedly to provide entertainment services to viewers. It is not consumed in a single show, incorporated into another product, or purchased for resale. Consequently, from the cinema hall’s business viewpoint, it is a capital good. It is a final capital good because the hall acquires it for its own investment and productive use.

The customer buys the popcorn for direct and immediate satisfaction while watching the film. It is not intended for resale, further production, or repeated productive use. Therefore, for the customer, it is a final consumption good. The classification changes with the economic role: before sale it is the cinema’s trading stock, but after purchase it is consumed by the final user.

The household buys mustard oil for direct personal use in worship and cooking. It is not being used to produce another marketable good, nor is it being purchased for resale. Hence it is a final consumption good for the household. Classification depends on the buyer’s purpose, not simply on the product’s name.

Sugar is purchased as an input for making sweets and is incorporated into the production of the final product. It is therefore an intermediate good for the sweet shop. Its value becomes part of the value of the sweets sold. Counting both sugar and the sweets as final output would count the same value twice.

The household purchases the sugar for direct use in preparing tea and satisfying its own consumption needs. It is not sold onward or used by a business to produce another market good. Therefore, it is a final consumption good. The same physical sugar can be intermediate when bought by a food producer.

Cotton is purchased by the textile mill as a raw material and transformed into yarn. Since it enters further production and becomes part of another product, it is an intermediate good for the mill. It is not a capital good because it does not provide services over several years; it is used up or transformed in production.

The chemicals are purchased as production inputs and are processed into medicines. Their value becomes part of the value of the finished pharmaceutical product, so they are intermediate goods for the company. They are not final consumption goods because the company does not buy them for direct satisfaction of household wants.

The household buys medicine for its own health and direct personal use. It is not used as an input to produce another good or service and is not purchased for resale. Therefore, medicine is a final consumption good for the household. The same medicine could be an intermediate input for a hospital providing treatment.

Printer paper is consumed while the accounting firm produces reports and related professional services for clients. It is therefore an intermediate input in the firm’s production process. It is not a fixed asset because it does not provide services for many years, and it is not a household final-consumption good in this context.

The consumer purchases the shirt for personal wearing and direct satisfaction of a want. It will not be used to produce another marketable good, nor will it be resold in the stated situation. Therefore, it is a final consumption good. This example shows that classification depends on use and purchaser, not merely on the physical item.

The restaurant uses the gas as an input to cook meals, and the gas is consumed during the preparation process. Thus, for the restaurant, it is an intermediate good whose cost is incorporated into the value of the meals or food service. A cylinder or oven used repeatedly would instead be capital equipment.

The household uses the gas directly for cooking and satisfying its own consumption needs. It is not purchased for resale or for producing another marketable good or service. Therefore, it is a final consumption good for the household. The same gas would be intermediate if a restaurant bought it to prepare meals for sale.

Lubricating oil is purchased as an input for operating and maintaining machines. It is consumed during the production process and does not provide a lasting stock of capital services by itself. Therefore, it is an intermediate good or intermediate consumption. A final capital good, such as a machine, lasts for many production periods, whereas oil is used up relatively quickly.

New machines purchased during a year represent expenditure on capital goods. Because this expenditure is measured over the period of one year, it is an investment flow. The machines add to the capital stock, but the purchase during the year itself is the flow. Depreciation is the loss of value, not the purchase. Thus, option B is correct.

Depreciation is the fall in the value or productive capacity of fixed capital because of regular use, ageing, wear and tear, or obsolescence. In national-income accounting it is called consumption of fixed capital. It is not an increase in prices, household saving, or tax collection, and it is deducted from gross investment to calculate net investment.

In national-income accounting, depreciation is also called consumption of fixed capital. The term describes the value of fixed assets, such as machines and buildings, that is used up during production because of wear, ageing, or obsolescence. It does not mean household final consumption, money supply, or total profit.