Question

Classify each of the following items as a final or an intermediate good or service, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services: \(\cdot\) Financial services bought by China Investment Corporation. \(\cdot\) Desktop computers bought by Barclays. \(\cdot\) New taximeters imported from China by the London Taxi Company. \(\cdot\) New DVD bought by a student from Virgin Megastore.

Short answer

Financial services - intermediate, investment. Desktop computers - intermediate, investment. Taximeters - intermediate, investment. DVD - final, consumption.

Step-by-step solution

- Financial services bought by China Investment Corporation

Determine if financial services bought by China Investment Corporation are a final or intermediate good and identify the type of expenditure. Since they are used for investment purposes and not for producing other goods, they are an intermediate service and fall under investment expenditure.

- Desktop computers bought by Barclays

Determine the classification of desktop computers bought by Barclays. These computers are used as part of the company's production process, making them intermediate goods and part of investment expenditure.

- New taximeters imported from China by the London Taxi Company

Evaluate whether new taximeters imported from China by the London Taxi Company are final or intermediate goods. Since they are used directly in the company’s operations, they classify as intermediate goods and fall under investment expenditure.

- New DVD bought by a student from Virgin Megastore

Assess whether a new DVD bought by a student from Virgin Megastore is a final or intermediate good and identify the expenditure type. This DVD is consumed directly by the student, making it a final good and part of consumption expenditure.

Key concepts

final goods

Final goods are products that are consumed directly by the end user. They are not used in the production of other goods or services. For example, a new DVD bought by a student from Virgin Megastore is considered a final good. It is intended for personal enjoyment and doesn't contribute to the production of other items. Final goods are essential for understanding how an economy consumes resources, as they reflect the end use of products and services.

intermediate goods

Intermediate goods are products used as inputs in the production of other goods or services. They are not meant for direct consumption by the end users. For instance, desktop computers bought by Barclay's are intermediate goods because they are used within the company's operations to produce financial services. Similarly, new taximeters imported from China by the London Taxi Company are intermediate goods as they are part of the service delivery process. Intermediate goods are crucial in understanding the supply chain and production processes within an economy.

consumption expenditure

Consumption expenditure refers to the spending on goods and services by households for their direct use or consumption. This category includes daily essentials, durable goods, and services that directly benefit the consumer. An example from the exercise is the new DVD bought by a student. It is a classic example of consumption expenditure because it is a good bought for personal entertainment. Tracking consumption expenditure provides insights into consumer behavior and economic health.

investment expenditure

Investment expenditure involves spending on goods that will be used for future production. These are typically capital goods like machinery, buildings, and equipment. Financial services bought by China Investment Corporation fall into this category as they are a form of investment, enhancing future financial returns. Additionally, desktop computers bought by Barclays and new taximeters by the London Taxi Company are also examples of investment expenditure. They signify an investment in enhancing the company's operational capabilities. Understanding investment expenditure is critical for assessing economic growth and productivity.

government expenditure

Government expenditure includes all government spending on goods and services. This might encompass infrastructure projects, public services, and defense. Even though the examples given focus on private and corporate spending, understanding government expenditure is vital. For instance, if the government buys new computers for public schools, it’s a form of government expenditure. This type of spending is crucial for providing public goods and services, supporting economic stability, and enhancing social welfare.