Previous - Types Of Business Organizations
The Distinction between Goods and Services
There are clear differences between goods and services based on the characteristics of each. A good is a tangible object while a service is intangible. The tangibility factor in goods means that goods can be touched, smelled, tasted and seen. These are absent in services. In terms of quality, goods are standard in that once produced, the quality is uniform across all lines of products. In addition, goods can be separated from seller to seller. On the other hand, services are intangible and are not really standard in quality and are inseparable from seller to seller. Another key difference between goods and services is that goods are perishable while services are nonperishable.
Types of Goods
Public goods are goods that are usually provided by the government. In these cases, the marginal costs are zero. Good examples of public goods are health care, education, security, housing and food.
Private goods are goods that are usually provided by the private sector. These goods have the features of excludability and rivalry. Excludability means that consumers of private goods can be excluded from consuming the product by the seller if they are not willing or able to pay for them. Therefore, these goods are usually provided by producers and sellers for a profit which is very different from the case of public goods.
Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidized or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service such as health and education.
Demerit goods are goods which can have a negative impact on the consumer – but these damaging effects may be unknown or ignored by the consumer. Demerit goods also usually have negative externalities – where consumption causes a harmful effect to a third party. Demerit goods have these two characteristics: 1) harmful to individual consumer and 2) also have negative externalities which are costs imposed on third parties. Demerit goods are usually over-produced.
Veblen and Giffen Goods
A Veblen good is a good where quantity demanded rises as price rises. A Giffen good also has a similar feature and does not have easily available substitutes. This means that as price increases, the income effect will dominate the substitution effect. The demand curve for such goods is also usually positively sloping as in the case of the Veblen good.