Economic types of product: goods, services

We desire to have all the things to satisfy our present and future wants. Thus, our desire is for all those things that satisfy our wants.

All these things are either material goods or services. If something is not wanted by anybody it will not be called a good or service.

A head of dirt will not be called as it is not wanted by any human being. Thus all the goods have the ability to satisfy some of our wants. Likewise, all services have the ability to satisfy some of our wants.

Therefore, we can divide the things that we wants into two categories:

(i) Goods and

(ii) Services. Goods are material things wanted by human beings. They can be seen or touched. Services are non-material things. These cannot be seen or touched only their effects are felt. When we are hungry, we take food. When we fall sick, we take medicines. When we study, we use book, notebook, pen, paper etc. All these are examples of goods which satisfy some of our wants. All the things which satisfy human wants are good.

However, wants for haircut, washing of cloths, mending of shoes, stitching of cloths, studying in a school or a college etc. are not satisfied by goods. These are satisfied by the services performed by a barber, washer man, cobbler, tailor and teacher etc. So some of our wants are satisfied by goods and some by services. Hence, all the human wants can be satisfied by goods and services.

Classification of Goods and Services:

Goods and services are of many types. However, these can be classified into some broad groups.

These are discussed below:

(i) Free Goods and Economic goods:

The goods which have unlimited supply and are provided as free gift of nature. The goods which are not man-made and do not have to pay anything to get them. These goods are known as ‘Free Goods’. For example, air, sea, water, sunlight, sand in the desert etc. On the other hand, goods like vegetables, grains, minerals, fruits, fishes etc. which are neither man-made nor unlimited supply of nature are known as ‘Economic Goods’ All these goods are sold and purchased in the market only.

(ii) Free Services and Economic Services:

Services which cannot be bought in the market and which are only rendered out of love, affection etc. are known as ‘Free Services’. For example, all services given by the parents to their children are free services. However, all the services that can be bought in the market are ‘Economic Services’. Services rendered by doctors, teachers, lawyers, barbers, cobblers etc. are the example of economic services.

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(iii) Consumer Goods and Capital Goods:

The goods which are directly used by the consumer for the purposes of consumption are known as ‘Consumer Goods’ The example of consumer goods are bread, biscuit, butter, jam, rice, fish, egg, shoes, shirts, fan, book, pen, cooking gas etc. On the other hand, all the goods which are not directly used to satisfy consumption but which are used in further production are called ‘Producer Goods’ or ‘Capital Goods’. The examples are seeds, fertilizers, tools, machines, raw materials etc.

9) Market economy system and its elements

A market economy is a system where the laws of supply and demand direct the production of goods and services. Supply includes natural resources, capital, and labor. Demand includes purchases by consumers, businesses and the government. Businesses sell their wares at the highest price consumers will pay. At the same time, shoppers look for the lowest prices for the goods and services they want. Workers bid their services at the highest possible wages that their skills allow.Employers seek to get the best employees at the lowest possible price.

Capitalism requires a market economy to set prices and distribute goods and services. Socialism and communism need a command economy to create a central plan that guides economic decisions. Market economies evolve from traditional economies. Most societies in the modern world have elements of all three types of economies. That makes them mixed economies.

Six Characteristics

The following six characteristics define a market economy.

1. Private Property. Most goods and services are privately-owned. The owners can make legally-binding contracts to buy, sell, or lease their property. In other words, their assets give them the right to profit from ownership. But U.S. law excludes some assets. Since 1865, you cannot buy and sell human beings. That includes you, your body, and your body parts. (Source: "Market Economy," University of Auburn.)

2. Freedom of Choice. Owners are free to produce, sell and purchase goods and services in a competitive market. They only have two constraints. First, is the price at which they are willing to buy or sell. Second is the amount of capital they have.

3. Motive of Self-Interest. Everyone sells their wares to the highest bidder while negotiating the lowest price for their purchases.Although the reason is selfish, it benefits the economy over the long run. That's because this auction system sets prices for goods and services that reflect their market value. It gives an accurate picture of supply and demand at any given moment.

4. Competition. The force of competitive pressure keeps prices low. It also ensures that society provides goods and services most efficiently. As soon as demand increases for a particular item, prices rise thanks to the law of demand. Competitors see they can enhance their profit by producing it, adding to supply. That lowers prices to a level where only the best competitors remain. This force of competitive pressure also applies to workers and consumers. Employees vie with each other for the highest-paying jobs. Buyers compete for the best product at the lowest price. For more, see What Is Competitive Advantage: 3 Strategies That Work.

5. System of Markets and Prices. A market economy relies on an efficient market in which to sell goods and services. That's where all buyers and sellers have equal access to the same information. Price changes are pure reflections of the laws of supply and demand. Find out the Five Determinants of Demand.

6. Limited Government. The role of government is to ensure that the markets are open and working. For example, it is in charge of national defense to protect the markets. It also makes sure that everyone has equal access to the markets. The government penalizes monopolies that restrict competition. It makes sure no one is manipulating the markets and that everyone has equal access to information. (Source: National Council on Economic Education.)

Examples:

The United States is the world's premier market economy. One reason for its success is the U.S. Constitution. It has provisions that facilitate and protect the market economy's six characteristics. Here are the most important:

 

Article I, Section 8 protects innovation as property by establishing a copyright clause.

Article I, Sections 9 and 10 protects free enterprise and freedom of choice by prohibiting states from taxing each others' goods and services.

Amendment IV protects private property and limits government powers by protecting people from unreasonable searches and seizures.

Amendment V protects the ownership of private property. Amendment XIV prohibits the state from taking away property without due process of law.

Amendments IX and X limit the government's power to interfere in any rights not expressly outlined in the Constitution.

10) Demand and demand law

The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.

Demand curves and demand schedules are tools used to summarize the relationship between quantity demanded and price.

Demand for goods and services

Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay, you have no effective demand.

What a buyer pays for a unit of the specific good or service is called price. The total number of units purchased at that price is called the quantity demanded. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand are held constant.

Demand schedule and demand curve:

A demand schedule is a table that shows the quantity demanded at each price.

A demand curve is a graph that shows the quantity demanded at each price.

The difference between demand and quantity demanded

In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve or one quantity on the demand schedule. In short, demand refers to the curve, and quantity demanded refers to a specific point on the curve.