Knowing a car’s classification will be helpful if you’re an avid car fanatic, a student of economics, or a businessperson looking for ways to write off your personal or operational vehicle.
If not one of the above, the following can be an interesting point of conversation, applying not just to cars but various other items found in our daily life. So, are cars classified as goods?
Cars are considered goods. Specific applications of vehicles, such as taxis, Ubers, or delivery, are considered services. It is distinguished as follows: if someone is buying the car, it is a good; when you are renting the vehicle or paying someone else to do something with it, it is a service.
Goods can be described in many ways by fields ranging from economics to finance and taxation. We will use these as a framework to explore the key differences between goods and services.
If you want to know what category of goods applies to your car or business vehicle, feel free to keep reading!
Are Cars Considered Goods Or Services?
In a broader sense, all products in the economy can be described as either goods or services. Goods are mostly items you can physically perceive (see, touch, smell, taste) and perform various actions (eat, drink, display, drive). Therefore, goods are often described as tangible, and you can own goods.
On the other hand, services are intangible and do not have a physical presence. In a linguistic sense, think of it as trying to touch a verb. It’s simply impossible!
Services are, therefore, actions that someone or something performs on your behalf for payment. You cannot own services, but you can, for instance, hold a subscription to a service (such as Netflix).
With these definitions established, it is easy to see that cars can be considered both goods and services. The physical car, however, will always be defined as a good only.
We will delve deeper into different classifications of goods, but first, let’s see why cars are considered both goods and services.
Why Are Cars Considered Goods?
Cars have a physical presence and can be perceived by all our senses (though, please don’t try and taste someone’s car).
When you buy a car, the physical object is in your possession, and you can use it for various purposes (though, in most cases, it will be for your transportation or the transportation of other objects and people).
Products like cars are often referred to as material goods.
Why Are Cars Not Considered Services?
Some may argue that taxis and Ubers are services. While they may be correct, the car itself isn’t the one performing the services. Just like a barber uses a pair of scissors or a razor to do their job, chauffeurs use cars to perform their service.
Therefore, your product is in the driver’s skillset and time, not the physical car. Services are often called non-material goods.
The same concept applies to delivery vehicles, rental cars, cars used for entertainment, etc. Consider rental cars for a moment: When you rent a car, you’re paying for a service.
You are buying the right to drive a specified car at an established price for a particular time. Since rights are intangible, the rental of the vehicle should be considered a service.
What Kind of Good Are Cars?
In economic theory, there are various ways to describe goods and services. Goods are usually distinguished on multiple levels and for a range of purposes.
When referring to the classification of goods, services are typically implied as goods. The reason is that the demand and purpose of both can be measured and described in similar ways.
Let’s go through them all.
Are Cars Consumer Goods Or Capital Goods?
Consumer goods are products intended for personal use which are not used in the production line of another consumer good.
Conversely, capital goods are products made and used to produce another consumer or capital goods. Therefore, capital goods are employed by businesses in their production process or to deliver their services.
Cars can fall within the category of consumer goods and capital goods due to their ability to be used personally and in the production line.
When businesses use cars, it is written up as PPE (or property, plants, and equipment). Cars (including trucks) can be used for the transportation of other goods, or as in the case of Uber and taxis, are the tool used by the driver to perform their service.
Are Cars Normal Goods Or Inferior Goods?
Normal and inferior goods are established according to the relative income elasticity of demand for a product. In layperson’s terms, this is defined as the product substitution rate given a change in a consumer’s income.
Good’s demand rises as the income of a person/people increases. Conversely, the need for inferior goods falls as income rises, i.e., they will substitute the inferior good by buying a normal good (which they can now afford) instead.
If you don’t know the economic theory behind all this, don’t worry, it’s still easy to understand normal and inferior goods using cars as an example.
For instance, comparing a luxury car to a regular, affordable vehicle, which do you think will be normal and which will be inferior?
When consumers’ income increases, they will have more money to spend and are more likely to opt for the luxury car, which makes it a normal good, and the regular car is, therefore, inferior. With standard and inferior goods, it’s often important to consider them both in tandem.
Are Cars Durable Goods?
Goods are finally also defined as being either durable or non-durable.
Usually, goods with an economic life of longer than three years are considered durable, while goods that expire soon after being bought (such as bread) or finished once consumed (once again, like bread) are perishable.
New cars are durable goods, while a taxi service is non-durable.
There are many other lines along which one can define goods, but these are sufficient to establish that cars are goods. When establishing what kind of good the car in question is, consider its qualities, such as manufacturer, economic age, physical condition, and price.
These will usually give you all you need to compare it to other products and settle upon a set definition of the good.