“Basis of classification of final goods into consumption and capital goods depend on the economic nature of its use.”

Question

(I) “Basis of classification of final goods into consumption and capital goods depend on the economic nature of its use.”

Defend or refute the statement, with the help of a suitable example.

(II) ‘Natural calamities in the hill states of India have led to massive destruction of capital assets.’

Identify the type of loss (depreciation or capital loss) indicated in the aforesaid statement. Give valid reasons in support of your answer.

Answer 1

(I) The given statement is defended. Consumption goods are those goods that directly satisfy the wants of the consumer whereas, capital goods are those final goods that are used for further production.

A good can be considered as a consumption good or a capital good. It depends upon the economic nature of its use.

For example, machinery purchased by a household can be classified as a consumption good whereas, if it is purchased by a firm for further production, then as a capital good.

(II) The massive destruction of capital assets caused by the recent natural calamities in the hill states of Himachal Pradesh and Uttarakhand can be considered as capital loss.

Capital loss refers to the loss in the value of fixed assets due to unforeseen circumstances like natural disasters, theft, fires, etc.