Question

``All producer goods are essentially capital goods.''
Defend or refute the given statement, with the help of a suitable example.

Hint:

Remember — capital goods are durable and repeatedly used, while producer goods also include single-use inputs like raw materials.

Answer 1

The given statement is refuted. Not all producer goods are capital goods. While both are used in the production of other goods and services, their classification depends on their nature and purpose.
Capital Goods: These are durable goods used repeatedly in the production process for several years. Example: machinery, tools, and equipment.
Producer Goods: These include both capital goods and single-use producer goods like raw materials and intermediate goods that are used up in the process of production. Example: raw cotton used by a textile mill, which is completely consumed in production. Example: A machine used in a factory for production is a capital good. However, the fuel used to run the machine is a producer good but not a capital good since it is consumed in one production cycle. Hence, the statement is incorrect as all producer goods are not capital goods.