8.1 Economic Wants

What is the role of capital formation in an economy?

Capital formation is defined as the production of capital goods.

The role of capital formation is the production of capital goods such as buildings and equipment. They are needed to produce consumer services and goods.

Consumer goods and services- goods and services to satisfy people's economic wants

For example, the clothing that a shop sells to the customers are consumer goods.

When productive resources are used for capital formation, it becomes possible to produce more consumer goods.

Interesting fact:

The Simple Truth line of natural food grew to an astonishing 1.2 billion in annual sales in just two years. This is possible because they used productive resources for capital formation.