What are capital goods?

Capital goods refer to durable, man-made resources that are used in the production of goods and services. These items, such as machinery, buildings, and tools, do not directly reach consumers but instead facilitate the manufacturing or provision of consumer products. They play a crucial role in the production process by enhancing efficiency and enabling businesses to produce more goods over time.

Understanding capital goods is essential in economics because they are a key component of the production function and contribute to economic growth. Unlike products intended for immediate consumer use, capital goods are not themselves sold directly to consumers but are used to create other products. They differ from natural resources, which occur without human intervention, and financial assets, which are not tangible resources but rather investment instruments that facilitate economic activity and growth.