Capital goods definition

Capital spending - key factors

A capital good is a durable good (one that does not quickly wear out) that is used in the production of goods or services. Capital goods are one of the three types of producer inputs, the other two being land and labor, which are also known collectively as primary factors of production. This classification originated during the classical economic period and has remained the dominant method for classification.

Capital goods are acquired by a society by saving wealth which can be invested in the means of production. In terms of economics one can consider capital goods to be tangible. They are used to produce other goods or services during a certain period of time. Machinery, tools, buildings, computers, or other kind of equipment that is involved in production of other things for sale represent the term of a Capital good. The owners of the Capital good can be individuals, households, corporations or governments. Any material that is used in production of other goods also is considered to be capital good.

Many definitions and descriptions of capital goods production have been proposed in the literature. Capital goods are generally considered one-of-a-kind, capital intensive products that consist of many components. They are often used as manufacturing systems or services themselves.

Examples include battleships, oil rigs, baggage handling systems and roller coaster equipment. Their production is often organized in projects, with several parties cooperating in networks (Hicks et al. 2000; Hicks and McGovern 2009; Hobday 1998). A capital good lifecycle typically consists of tendering, engineering and procurement, manufacturing, commissioning, maintenance and (sometimes) decommissioning (Blanchard 1997; Hicks et al. 2000; Hobday 1998; Vianello and Ahmed 2008).

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Q&A

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What is the economic definition to capital goods?

Capital goods are machines and tools used in the production of other goods.

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What is the best definition of a capital good?

Capital goods is defined as goods, such as machinery, used in the production of commodities; producer goods.


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