*DAY #03 29.03.2020*
*TOPIC
– BASIC CONCEPTS
IN MACROECONOMICS*
*Consumption
goods, capital goods, final goods, intermediate goods*
*CONSUMPTION
GOODS*
*
These goods satisfy human wants directly.
*
These goods have direct demand.
They
do not promote production capacity.
* Most of the consumption goods (except durable goods) have limited
expected life.
*CAPITAL
GOODS*
*
Such goods satisfy human wants indirectly.
*
Such goods have derived demand.
*
They help in rising production capacity.
* Capital goods generally have an expected life more than one year.
*FINAL
GOODS*
*
Those goods which are used either for consumption or for investment.
*
They have a direct demand as they satisfy the want directly.
*
It is included in both National and Domestic Income.
*
Crossed the production boundary.
* They are ready for use by their final users i.e. no value has to be
added to the final goods.
*INTERMEDIATE
GOODS*
*
Those goods which are used either for resale or for further production.
*
They have a derived demand as their demand depends on the demand for final
goods.
*
It’s neither included in National nor in Domestic Income.
*
Still within production boundary.
* They are not ready for use, i.e. some value has to be added to the
intermediate goods
*MUST
KNOW IN DETAIL*
*Consumption Goods and Capital Goods*
Final goods can be classified into two
groups: Consumption Goods and Capital Goods.
*Consumption Goods:*
Consumption goods refer to those goods which
satisfy the wants of the consumers directly. For example, Bread, butter,
shirts, pens, television, furniture, etc.
*Consumption goods can further be sub-divided
into following categories:*
*1. Durable goods:*
It refers to those goods which can be used
again and again over a considerable period of time. For example, television,
refrigerators, etc.
*2. Semi-durable
goods:*
Goods
which can be used for a limited period of time are termed as semi-durable
goods. These goods have a life span of around one year. For example, clothes,
crockery, shoes, etc.
*3. Non-durable
goods:*
Goods
which are used up in a single act of consumption are known as non-durable
goods. These goods cannot be used more than once, i.e. they lose their identity
in single act of consumption. For example, milk, bread, food grains, paper,
etc.
*4. Services:*
Services
refer to non-material goods which directly satisfy the human wants. They are
intangible activities, i.e. they can neither be seen nor touched. For example,
services of teachers, doctors, banks, etc.
*Capital
Goods*
Capital
Goods are those final goods which help in production of other goods and
services. For example, plant and machinery, equipment’s, etc.
*Some Points about Capital Goods:*
(i)
They are used in future for productive purposes and have expected life time of
several years.
(ii)
They do not lose their identity in the production process, i.e. they do not get
merged in the process of production.
(iii)
They need repairs or replacement over time as they depreciate over a period of
time.
(iv)
They have derived demand as their demand is derived from the demand for other
goods, which they help to produce.
*How
to Classify Goods as: Consumption Goods and Capital Goods:*
There
is no clear cut line of demarcation between consumption goods and capital
goods. The same good can be consumption good and also capital good. It depends
on the ultimate use of the good. For example, a machine purchased by a
household is consumption good, whereas, if it is purchased by a firm for use in
the business, then it is a capital good. However, if the machinery is bought by
the firm for resale, then it will be treated as an intermediate good.
*Consumption Goods Vs. Capital Goods*
*Basis
-* Satisfaction of Human wants:
*Consumption
Goods -* These goods satisfy human wants directly. So, such
goods have direct demand.
*Capital
Goods -* Such goods satisfy human wants indirectly. So, such
goods have derived demand.
*Basis
-* Production Capacity:
*Consumption
Goods -* They do not promote production capacity.
*Capital
Goods –* They help in raising production capacity.
Basis
- Expected Life:
*Consumption
Goods -* Most of the consumption goods (except durable goods)
have limited expected life.
*Capital
Goods -* Capital goods generally
have an expected life of more than one year.
*FACTOR
INCOME*
*
It refers to the income received by factors of production for rendering their
services in the production process.
*
It is included in both National and Domestic Income.
*
Earning Concept.
* Received by factors of production ( Land, labour, Capital and
Entrepreneur)
*TRANSFER
INCOME*
*
It refers to the income received without rendering any productive services in
return.
*
It’s neither included in National nor in Domestic Income.
*
Receipt concept.
* Generally received by household and government.
*QUESTIONS AND ANSWERS*
*Question
-* What is an example of a capital good?
*Answer
-*They are purchased and used to help your company produce
consumer goods or provide services. They are reported as
assets on a company's balance sheet and often can be depreciated over
time. Examples of capital goods include
buildings, machines, equipment, furniture and fixtures.
*Question
-* What are the types of capital goods?
*Answer
-*They include tools, buildings, vehicles, machinery,
and equipment. Capital goods are also called durable goods, real capital, and
economic capital.
The other three are:
The other three are:
Natural
resources, such as land, oil, and water.
Labor,
such as workers.
Entrepreneurship,
which is the drive to create new companies.
*Question -* What are consumption goods and services?
*Answer -*A consumption good or service is
one that is used (without further transformation in production) by households,
NPISHs or government units for the direct satisfaction of individual needs or
wants or the collective needs of members of the community.
*Question -* Do Durable goods include both consumer and capital goods?
*Answer -*durable goods include both consumer goods and capital goods? ... Yes, durable
goods are bought and used by consumers and are
manufactured by other goods to producer them.
*Question -* Are capital goods intermediate goods?
*Answer -*Capital goods are
also known as intermediate goods, durable goods or
economic capital. They are different than financial capital,
which refers to funds companies use to grow their businesses. Natural resources
not modified by human hands are not considered capital goods,
although both are factors of production.
*Question -* Can any final goods be capital goods?
*Answer -*On the contrary capital goods are not
considered as final goods but they are used to make the final
goods and services in the market. Capital goods themselves do not
get fused to make the intermediate goods into final
goods but rather support them to get finished into final
goods.
*Question
-* What is final goods example?
*Answer
-*Food, gasoline, clothing, and televisions are examples of final
goods if used by households. Final goods can either
be durable or non-durable.
*Question
-* What is called the final goods?
*Answer
-* “A final good is an item produced for
the direct use by end consumers. Final goods are also referred
to as consumer goods.” Put simply; the term refers to any commodity
that a company produces and a consumer subsequently consumes. The consumer
consumes it to satisfy his or her current wants or needs.
*Question
-* What are examples of intermediate goods?
*Answer
-* “Products that are made during a manufacturing process
but that are also used in the production of other goods. Wood,
steel, and sugar are all examples of intermediate goods.”
*Question
-* Why are intermediate goods not included in GDP?
*Answer
-*Intermediate goods and services, which
are used in the production of final goods and services, are not
included in the expenditure approach to GDP because
expenditures on intermediate goods and services are included in
the market value of expenditures made on final goods and
services.
*Question
-* Are capital goods intermediate goods?
*Answer
-*Capital goods are also known
as intermediate goods, durable goods or
economic capital. They are different than financial capital,
which refers to funds companies use to grow their businesses. Natural resources
not modified by human hands are not considered capital goods,
although both are factors of production.
*Question
-* Which is not a factor income?
*Answer
-*Factors of production
include: land whose income is rent, labor whose income is
wages and capital whose income is interest and
entrepreneurship whose income is profit. Income that
is not derived from either of these factors is not
factor income e.g. donations and gifts.
*QUESTIONS AND
ANSWERS**1 MARKS* (
*1*. The good or
service purchased by an Individual or an enterprise is for :
a. Final Use
b. Use in further
production
*c. Both (a) and (b)*
d. Consumption
*2*. A good that is
meant for final use and will not pass through any more stages of production or
transformations at the hands of any producer is called _*A final Good*_.
*3* A final good may also
undergo transformations. True/False *True*
*4* It is not in the
nature of the good but in the _*Economic Nature of Its Use*_______ that a good
becomes a final good. (FIII In the blank).
*5* If tea leaves are
used In a restaurant for tea brewing, and the drinkable tea is sold to the
customers, then the tea leaves will be. (Choose the correct alternative)
(a) Final goods
*(b) Intermediate
good*
(c) Consumption goods
(d) Capital goods
*6* Final goods are:
(Choose the correct alternative)
(a) Consumption goods
(b) Capital goods
*(c) Both (a) and (b)*
(d) intermediate
goods
*7* Goods like food
and clothing and services like recreation that are consumed when purchased by
their ultimate consumers are called _*Consumption good or consumer good*_____.
(Fill in the blank) .
*8* Goods of durable
character which make production of other commodities feasible but they
themselves don't get transformed in the production process, are called _*Capital
Good*_. (Fill In the blank).
*9* The durable goods
which undergo wear and tear with gradual use, and thus are repaired or
gradually replaced over time are : (Choose the correct alternative)
(a) intermediate
goods
(b) Capital goods
(c) Consumer durables
*(d) Both (b) and (c)*
*10* All the final
goods and services produced in an economy in a given period of time are either
in the form of _*Consumption Good- Durable and non durable* _ or _*Capital Good*_____.
(Fill in the blanks)
*11* Of the total
production taking place in the economy, a large number of products don't end up
In final consumption and are not capital goods either. These are __*Intermediate
Goods*_. (Fill in the blank)
*12* Raw materials or
non-factor inputs used for production of other commodities are: (Choose the
correct alternative)
(a) Capital goods
(b) Final goods
*(c) Intermediate
goods*
(4) Consumer durable:
*13* Income, or
output, or profits are concepts that make sense only when a time period is specified.
These are called ___*Flows*________. (Fill In the blank)
*14* The part of
final goods that comprises of capital goods constitutes of an economy. (Fill in
the blank) *Gross Investment*
*15* All the capital
goods produced in a year do not constitute net addition to the capital stock
already existing. True / False? Give
reason. *True*
*DAY #03 29.03.2020*
*TOPIC – BASIC CONCEPTS IN MACROECONOMICS*
*Video #05*
*Factor Income and Transfer Income - Basic concepts of National Income*
*Video #06*
*Basic concepts of National Income - Consumption Goods and Capital Goods*
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Regards
Dr. Asad Ahmad
KV IIM, Lucknow
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