Classify the following items as a final good or service or an intermediate good or service and identify each item as a component of consumption expenditure, investment, or government expenditure on goods and services: \(\cdot\) Airline ticket bought by a student. \(\cdot\) New airplanes bought by Southwest Airlines. \(\cdot\) Cheese bought by Domino's. \(\cdot\) Your purchase of a new iPhone. \(\cdot\) New house bought by Bill Gates.

Consumption expenditure refers to the spending by households and individuals on goods and services. This is the most common type of expenditure in an economy. When you buy an airline ticket, a new iPhone, or a meal at a restaurant, you are engaging in consumption expenditure.
Consumption expenditure is crucial because it directly affects the overall demand in an economy. It includes:

• Durable goods like cars and appliances
• Non-durable goods like food and clothing
• Services such as travel, healthcare, and entertainment

For example, the airline ticket bought by a student is considered a final good and falls under this category because it is consumed by the student, providing a service directly to them.

Investment entails spending on goods that will be used for future production. It’s a key driver of economic growth as it increases the capacity of an economy to produce goods and services.
Investments can be:

• Business investments like machinery, equipment, and buildings
• Residential investments like new housing
• Changes in inventories

An example of investment is the purchase of new airplanes by Southwest Airlines. These airplanes are intermediate goods used in providing transportation services, meaning they're part of an airline's capital stock. Similarly, when Bill Gates buys a new house, this is also classified as investment because residential housing is treated as a form of investment in economics.

Government expenditure refers to the spending by the government on goods and services that are intended for public use or to support other functions of the government. This form of expenditure plays a vital role in shaping economic activities and ensuring public welfare.
Government expenditures include:

• Public services like education and healthcare
• Infrastructure projects like roads and bridges
• Defense and security

Unlike consumption expenditure, which is made by individuals, and investment, which is primarily for future production, government expenditure supports both current and future societal needs. Governments spend money for the collective benefit, impacting overall economic stability and growth.

The production process involves transforming raw materials or components into finished goods. This is where intermediate goods come into play—items that are not intended for final consumption but will be used to produce other goods and services.
Examples include:

• Ingredients for food products
• Parts used in manufacturing
• Materials for construction

For instance, cheese bought by Domino's is an intermediate good as it is a vital part of making pizzas, which are then sold to consumers. The new airplanes purchased by Southwest Airlines also fall under this category, serving as crucial assets in their service production process. Intermediate goods are essential in ensuring the smooth flow of production, ultimately leading to the creation of final goods for consumption or investment.