Economic goods: definition and classification

Goods are the means that allow needs to be satisfied.

Upstream, we can note the existence of two types of goods:

natural goods or free goods: products of nature and not of human activity, such as water, air, sunlight, they are theoretically in unlimited quantity.

non-natural goods or economic goods: born from human activity and transformed throughout the productive process, such as the pair of shoes, the computer, the washing machine, they are of a wide variety.

Definition of Economic Goods

The satisfaction of needs is achieved through economic goods. A good can be a tangible object or an intangible service. A good is considered economic if it fulfills the following four characteristics:

  • Utility or the ability to satisfy a need: This depends on time and space. For example, oil was not an economic good before the invention of the internal combustion engine.
  • Possessing properties identified by the consumer as capable of satisfying their needs.
  • Availability: The possibility to acquire the good at any time.
  • Scarcity: A good that is available in unlimited quantities is not an economic good. For example, air, while essential for breathing, is not considered an economic good because it is not scarce.

Economic goods, meeting these four characteristics, have varying roles in economic activity. Six levels of differentiation can be identified:

Classification of economic goods

  • Consumer goods and investment or production goods:

To produce any good, it is necessary to combine material and human means; Some of these material resources are destroyed during the production process (a certain quantity of work, raw materials, energy, etc.).

Others are not immediately destroyed, they participate in several productive cycles, these are investment goods which are worn out over a long period; the latter mainly concern equipment and buildings.

It is important to evaluate this progressive wear of the equipment in order to be able to replace it; This is called depreciation or depreciation which is the loss of value that results from the wear and tear of the equipment in place.

While consumer goods, such as clothing and food are those which directly contribute to our satisfaction; they are then destroyed by the use for which they were directly intended.

Furthermore, certain goods can change their nature depending on the use they are made of. Thus, a car purchased by an individual is considered a durable consumer good since it does not create future income (this is also the example of refrigerators) whereas if it is purchased by a taxi driver, it is considered an investment good.

  • Final goods and intermediate goods:

We call final good a good which is at the final stage of development so that it is ready for the operation for which it is intended without transformation; These are the goods and services that are purchased for final use. There are four main categories of use or final use of goods and services: consumption, investment, storage and export.

Whereas an intermediate good or an input is a good that is used in the production of other goods or services. These are raw materials and semi-finished products, the latter circulating within the company (between workshops of the same company) or between companies.

Here again the classification criterion being the mode of use of goods and services rather than the nature of the goods or services provided. Thus, a quantity of energy purchased by an individual is a final good whereas if it is purchased by a company to run a machine, it is an intermediate good.

In both cases it is consumption, it is final consumption for the individual but intermediate consumption for the company.

  • Complementary goods and substitutable goods and independent goods:

It is a distinction which relates, this time, to the nature of the relationships which exist between goods, these relationships are established by consumption habits or by technical requirements.

Two goods are said to be complementary if they cannot be dissociated to satisfy the same need. A good is said to be complementary when it is consumed with another good. For example, the car and fuel, tea and sugar, blackboard and chalk are complements or complementary goods. If the price of fuel increases, people will buy fewer cars and the demand for cars decreases.

Whereas two goods are said to be substitutable if they can be dissociated to satisfy the same need (coffee and tea, fish and meat, etc.). A substitute good is a good that can be used in place of another.

On the other hand, complementarity and perfect substitutability are rare.

  • Private goods and collective goods:

Individuals consume goods purchased from stores; these are private goods or goods that satisfy private consumption needs.

These same individuals also consume goods and services consumed by other individuals such as roads, universities and hospitals; these are collective goods. In fact, when a motorist uses the road to satisfy his personal needs, he is not alone on the road, he uses it at the same time with other motorists.

  • Tangible goods and intangible goods:

Material goods are tangible, apparent, and physical products.

While intangible goods concern services which are products not materialized by a material good. Certain activities such as that of a doctor, a hairdresser, a trainer have nothing material: they are services that we call services. They are intangible and meet needs other than goods.

These services can be:

  • merchants (paid like the cinema, a haircut, a language course, etc.).
  • non-market (such as roads, security, etc.).
  • Durable goods and non-durable goods:

Non-durable goods are destroyed upon their first use, such as food goods, for example.

semi-durable goods are used several times and have an average lifespan (a pair of shoes, pants, a pencil, etc.).

While the consumption of durable goods can be spread over time, it concerns, for example, real estate, household appliances, machines.

Conclusion

In conclusion, economic goods are goods produced to satisfy human wants and needs, but their scarcity creates a market where they must be allocated through price and competition. Understanding the nature of economic goods is fundamental to understanding the fundamental problem of scarcity and how resources are allocated in society.

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