Which of the following is one of the features of capital goods?
AThey are durable.
BThey are inexpensive.
CThey are Giffen goods.
DThey are inferior goods.
Answer:
A. They are durable.
Read Explanation:
Characteristics of Capital Goods
- Durability: Capital goods are characterized by their durability, meaning they are designed to last for an extended period, often several years. This contrasts with consumption goods, which are used up quickly.
- Productivity: These goods are used in the production of other goods and services. They are not consumed directly but contribute to the creation of wealth. Examples include machinery, tools, buildings, and vehicles used by businesses.
- Investment: The acquisition of capital goods represents an investment. Businesses invest in these items to enhance their productive capacity and efficiency.
- Depreciation: Over time, capital goods depreciate in value due to wear and tear, obsolescence, or technological advancements. This depreciation is accounted for in business finances.
- Economic Impact: The availability and quality of capital goods significantly influence a nation's economic growth and development. Higher levels of capital formation generally lead to increased output and living standards.
Distinction from Other Goods:
- Capital Goods vs. Consumption Goods: Consumption goods satisfy immediate wants (e.g., food, clothing), while capital goods facilitate future production.
- Capital Goods vs. Raw Materials: Raw materials are transformed into finished products during the production process, whereas capital goods are instrumental in that transformation but are not incorporated into the final product.