Which of the following goods undergo wear and tear, thus gradually replaced over time?

Capital Goods.

The correct answer is Option (1) → Capital Goods.

Capital goods are goods used in the production of other goods and services, such as machinery, tools, and equipment. These goods do not get consumed in a single use but are used repeatedly over time. However, they undergo wear and tear due to continuous use and eventually need to be replaced, a process known as depreciation.

• Consumer Goods – These are meant for final consumption and are usually used up quickly (like food, clothes), not gradually replaced due to wear and tear in the same sense as capital goods.

• Intermediate Goods – These are used in the production of final goods and are consumed in the process (like raw materials), not gradually worn out.

• Giffen Goods – These are a type of inferior good that defy the law of demand, not related to wear and tear at all.