Human wants are satisfied by goods and services, which are carried through various economic activities. These goods and services are as diverse as wants. For example, when we are hungry, we take food. When we are thirsty, we take water. In a similar way we need many goods such as pen and paper to write, house to live in, chairs to sit, a washing machine to wash the clothes, a television to watch the programmes.
Goods alone are not sufficient to fulfil wants. We need the services of different people for different jobs. For example, a hairdresser to cut our hair, a doctor to cure, a tailor to stitch clothes, a cobbler for mending shoes. Both goods and services satisfy human wants.
For example, chair. You can see a chair and can also touch it. The carpenter first makes it in his workshop. You use it after purchasing it from the market. So there is a time gap between production of chair and its consumption. If suppose you do not require that chair immediately you can keep it in your store and can use it when you require it.
For example, services of a doctor. The doctor examines a patient and writes the medicines. Now he has delivered a service (for the treatment of the patient), which we cannot see or touch. The moment he examines the patient, he has delivered his services which is also consumed by the patient. So there is no time gap between production and consumption of services. Now this service cannot be stored or transferred.
Different types of enterprises produce different types of goods and services. To understand them properly, these are classified in a number of broad groups. This classification can be done in many ways:
1. Free goods and economic goods
Free goods are free gifts of nature. They are available in abundance i.e. in unlimited quantity and the supply is much more than the demand. You don’t have to pay anything to get them. That is why they are called free goods. Free goods as goods which posses utility but which are not scarce.
Economic goods are those goods (man-made or free gifts of nature) whose demand is more than supply. They command a price and they can be bought in the market.
2. Free services and economic services
Free services are those, which cannot be bought in the market and which are rendered due to love, affection, etc. For example, services of parents for their children. All those services, which can be bought in the market, are economic services such as services of doctors, engineers, etc.
3. Consumer goods and Producer goods
This classification is based on the purpose for which a particular good is used. Consumer goods are those goods, which satisfy the want of consumer directly. They are goods, which are used for consumption. For example bread, fruits, milk, clothes, etc.
Producer goods are those goods, which satisfy the want of consumers indirectly. As they help in producing other goods, they are known as producer goods. For example machinery, tools, raw materials, seeds, manure and tractor, etc are all example of producer goods.
Raw materials, power, fuel, etc. used by the producers for further production of final goods and services are also called intermediate goods. For example, wheat flour is an intermediate good in the production of bread in the bakery.
4. Consumer services and producer services
When the consumers or the households directly use services, they are known as consumer services. For example, services of a tailor stitching your shirt or services of a doctor giving you the treatment or services of a plumber repairing your leaking tap, etc.
Producer services on the other hand are used to produce other goods and services, which are in turn demanded by the consumers. Producer services satisfy the human wants indirectly. For example, a tailor stitches a shirt for a ready-made garment shop, an electrician repairs fault in the electric supply in a production unit.
5. Single use and durable use goods
All types of goods whether consumer goods or the producer goods are further classified into single use and durable use goods. Single use goods are those goods, which can be used only once. They are finished only in one use. For example, bread, butter, egg, milk, etc are the single use consumer goods as they are consumed immediately and once for all. Similarly single use producer goods are exhausted in one production process. For example, coal, raw material, seeds, manure, etc.
Durable use goods are those goods, which can be used again and again for a long period of time. There are durable use consumer goods as well as durable use producer goods. Durable use consumer goods are cloth, furniture, television, scooter, etc. that can be used by consumer again and again. Durable use producer goods are used in production again and again for example, machines, tools, tractors and implements, etc.
This does not mean that repeated use of these goods does not make any difference to them. In fact the value of these goods gets depreciated after continuous use.
6. Private goods and public goods
Goods can be classified on the basis of their ownership. All goods that are privately owned and are exclusively enjoyed by individuals are called private goods. For example all the goods owned by you are private goods. This includes your watch, pen, scooter, books, table, chair, bed, clothes, etc. If you own a factory then its building, machinery; tools etc are your private goods.
Public goods are those goods, which are owned and enjoyed by the society as a whole. For example roads, bridges, park, town hall, etc. are all collectively owned. They are available to all people in a society without any discrimination. No one is denied from the consumption of public goods.
Goods and services have a multidimensional role to play in an economy.
1. Human wants
Human wants are unlimited and they are also ever increasing. It means if the availability of different goods and services like clothes, shoes, furniture, utensils, television, scooter, fruits, vegetable, food grains and services of doctor, plumber, electrician etc increases, it will satisfy more human wants.
People require consumer goods and services to satisfy increasing human wants. But this increase in availability of consumer goods and services depends on the increased availability of producer goods and services. We can produce more if we have more and better machinery, raw material, tractors, seeds, manure etc. similarly we require more of transportation services, banking and insurance services. Thus, it is the quantity and quality of producer’s goods and services that will determine the availability of consumer goods and services in the market.
Increase in the production of goods and services will also determine the level of investment. Given the quantity of goods and services, a part of it is consumed, which satisfies the human wants. Whatever is not consumed is used for further production and it results in capital formation in the economy. If the production of goods and services is more, it is likely that the consumption will be more and the investment will also be more. The larger is the surplus, the larger is the productive capacity of the economy.