Goods and services

1. GoodsandServices
ECONOMICS
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MODULE - 1
Understanding Economics
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3
GOODS AND SERVICES
Youhavelearntthathumanwantsareunlimitedandinsatiable.Nowthequestionis,how
manyofourwantscanbesatisfiedandhowtheycanbesatisfied.
Humanwantsaresatisfiedbygoodsandservices,whicharecarriedthroughvarious
economicactivities.Inthislessonyouwilllearnaboutthetermsgoodsandservices,
types of goods and services and significance of goods and services in relation to
production,consumption,investmentandhumanwants.
OBJECTIVES
Aftercompletingthislesson,youwillbeableto:
explain the terms goods and services;
identify various types of goods and services;
distinguish between goods and services;
understand the basis for different types of goods and services;
know about free and economic goods and services;
make out the difference between consumer and producer goods and services;
explain how goods can be single use and durable use;
differentiate between public goods and private goods.
3.1 GOODS AND SERVICES
Inourdailylife,wecomeacrossvarietyofgoodsandservices.Whenwearehungry,
wetakefood.Whenwearethirsty,wetakewater.Inasimilarwayweneedmanygoods
suchaspenandpapertowrite,housetolivein,chairstosit,awashingmachinetowash

2. ECONOMICS
GoodsandServices
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Notes
MODULE - 1
Understanding Economics
theclothes,,atelevisiontowatchtheprogrammesetc.Allthesearetheexamplesof
goodsthatsatisfyourwants.
Butgoodsalonearenotsufficienttofulfillourwants.Weneedtheservicesofdifferent
peoplefordifferentjobs.Forexamplewerequireahairdressertocutourhair,adoctor
tocureus,atailortostitchourclothes,acobblerformendingourshoesetc.Theseare
afewexamplesofservicesthatsatisfyourwants.Bothgoodsandservicessatisfyhuman
wants.Thesegoodsandservicesareasdiverseasourwants.
3.2 DISTINCTION BETWEEN GOODS AND SERVICES
Nowthatweknowthatbothgoodsandservicesareimportanttosatisfyhumanwants,
letusunderstandhowbotharedifferentfromeachother.Themainpointsofdistinction
are:
Goods
1. Goodsaretangibleinnaturei.e.theycanbeseenandtouched.
2. There is a time gap between production and consumption of goods as they are
producedfirstandconsumedlater.
3. Theycanbestoredandutilizedwhenrequired.
4. Theycanbetransferredfromoneplacetoanother.
Letustakeexampleofanyonegood,saychair.Youcanseeachairandcanalsotouch
it.Thecarpenterfirstmakesitinhisworkshop.Youuseitafterpurchasingitfromthe
market. So there is a time gap between production of chair and its consumption. If
supposeyoudonotrequirethatchairimmediatelyyoucankeepitinyourstoreandcan
useitwhenyourequireit.Youcanevengiveitorsellittoanotherperson.
Services
1. Servicesarenon-tangibleinnaturei.e.theycanneitherbeseennorbetouched.
2. Thereisnotimegapbetweentheproductionandconsumptionofservices.Thatis
whytheyareproducedandconsumedsimultaneously.
3. Servicescannotbestored.
4. Transferofserviceisnotpossible.
Letusconsidertheexampleofservicesofadoctor.Thedoctorexaminesapatientand
writesthemedicines.Nowhehasdeliveredaservice(forthetreatmentofthepatient),
whichwecannotseeortouch.Themomentheexaminesthepatient,hehasdelivered
hisserviceswhichisalsoconsumedbythepatient.Sothereisnotimegapbetween
production and consumption of services. Now this service cannot be stored or
transferred.

3. GoodsandServices
ECONOMICS
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Understanding Economics
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INTEXT QUESTIONS 3.1
1. Whichofthefollowingitemsaregoods.
(a) Car
(b) Cellphone
(c) Transportationofpassengers
(d) Mendingofshoes
2. Outofthefollowing,whicharethecharacteristicsofagood.
(a) Goods can be seen or touched
(b) Goodscannotbetransferred
(c) Thereisnotimegapbetweentheproductionandconsumptionofgoods
3. Outofthefollowing,whicharethecharacteristicsofservices
(a) Servicescanbeseenortouched
(b) Thereisnotimegapbetweenproductionandconsumptionofservices
(c) Servicescanbestored
4. Humanwantsaresatisfiedbyconsuming.
(a) Goods
(b) Services
(c) Bothgoodsandservices
(d) Noneoftheabove
3.3 CLASSIFICATION OF GOODS AND SERVICES
We know that different types of enterprises produce different types of goods and
services.Itisnotpossibletostudythemindividually;thereforetounderstandthem
properlywehavetoclassifytheminanumberofbroadgroups.Thisclassificationcan
bedoneinmanyways.Thisclassificationhelpsustounderstandtherelativeeconomic
significanceofdifferentgoods.Wewillstudythefollowingclassifications:
1. Freegoodsandeconomicgoods.
2. Freeservicesandeconomicservices.
3. Consumergoodsandproducergoods.
4. Consumerservicesandproducerservices.
5. Singleusegoodsanddurableusegoods.
6. Privategoodsandpublicgoods.

4. ECONOMICS
GoodsandServices
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Notes
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Understanding Economics
1. Free goods and economic goods
Letusassumethatyouareinadesert.Ifyoufillabagwithsand,youneednotpayany
price.Butotherwiseinacity,youhavetopayforit.Thisexamplehelpsustodifferentiate
a free good from an economic good. Free goods are free gifts of nature. They are
availableinabundancei.e.inunlimitedquantityandthesupplyismuchmorethanthe
demand.Youdon’thavetopayanythingtogetthem.Thatiswhytheyarecalledfree
goods.Inshortwecandefinefreegoodsasgoodswhichpossesutilitybutwhichare
notscarce.
Inourdailylife,weusetoothpaste,soap,shavingcream,footwear,breadetc.These
goodsaremanmadeandtheirsupplyisnotunlimited.Similarlyweusemachines,buses,
table,chair,books,fans,televisionetc.Theytooaremanmadeandtheirsupplyisnot
unlimited. We use water for various purposes at home, sand for construction and
differentmineralsindifferentforms.Nowthesearenotmanmadebutfreegiftsofnature.
Butbecausetheyarescarcei.e.theirdemandismorethantheirsupply,theycommand
apriceandarenotfreelyavailable.Theyaretheeconomicgoods.
Economicgoodsarethosegoods(manmadeorfreegiftsofnature)whosedemandis
morethansupply.Theycommandapriceandtheycanbeboughtinthemarket.
2. Free services and economic services
Incaseofservicestoo,therearefreeservicesandeconomicservices.Freeservicesare
those, which cannot be bought in the market and which are rendered due to love,
affectionetc.Forexampleservicesofparentsfortheirchildren.Allthoseservices,which
can be bought in the market, are economic services such as services of doctors,
engineers etc. The rest of the classification of goods and services deal only with
economicgoodsandservices.
3. ConsumergoodsandProducergoods
Thisclassificationisbasedonthepurposeforwhichaparticulargoodisused.Consumer
goodsarethosegoods,whichsatisfythewantofconsumerdirectly.Theyaregoods,
whichareusedforconsumption.Forexamplebread,fruits,milk,clothesetc.
Producergoodsarethosegoods,whichsatisfythewantofconsumersindirectly.Asthey
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
producergoods.
3a. Intermediate goods
Rawmaterials,power,fuelsetc.usedbytheproducersforfurtherproductionoffinal
goodsandservicesarealsocalledintermediategoods.Example:Wheatflourisan
intermediategoodintheproductionofbreadinthebackery.

5. GoodsandServices
ECONOMICS
Notes
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Understanding Economics
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4. Consumer’s services and producer’s services
Heretoothebasisofclassificationisthesameasthatofgoods.Whentheconsumers
or the households directly use services, they are known as consumer services. For
exampleservicesofatailorstitchingyourshirtorservicesofadoctorgivingyouthe
treatmentorservicesofaplumberrepairingyourleakingtap,etc.
Producer services on the other hand are used to produce other goods and services,
whichareinturndemandedbytheconsumers.Inotherwordsproducerservicessatisfy
thehumanwantsindirectly.Forexampleatailorstitchesashirtforareadymadegarment
shop,anelectricianrepairsfaultintheelectricsupplyinaproductionunitorevenatruck-
transportingrawmaterialtoafactory.
5. Single use and durable use goods
Alltypesofgoodswhetherconsumergoodsortheproducergoodsarefurtherclassified
intosingleuseanddurableusegoods.Singleusegoodsarethosegoods,whichcanbe
usedonlyonce.Theyarefinishedonlyinoneuse.Forexamplebread,butter,egg,milk
etcarethesingleuseconsumergoodsastheyareconsumedimmediatelyandoncefor
all.Similarlysingleuseproducergoodsareexhaustedinoneproductionprocess.For
examplecoal,rawmaterial,seeds,manureetc.Toelaborateitfurtherletustakethe
exampleofproductionofsugar.Heretherawmaterialissugarcane,whichisusedonly
once.
Durableusegoodsarethosegoods,whichcanbeusedagainandagainforalongperiod
oftime.Therearedurableuseconsumergoodsaswellasdurableuseproducergoods.
Durableuseconsumergoodsarecloth,furniture,television,scooteretc.thatcanbe
usedbyconsumeragainandagain.Durableuseproducergoodsareusedinproduction
againandagainforexample, machines,tools,tractorsandimplmentsetc.thisdoesnot
meanthatrepeateduseofthesegoodsdoesnotmakeanydifferencetothem.Infact
thevalueofthesegoodsgetsdepreciatedaftercontinuoususe.
6. Privategoodsandpublicgoods
Goodscanbeclassifiedonthebasisoftheirownership.Allgoodsthatareprivately
ownedandareexclusivelyenjoyedbyindividualsarecalledprivategoods.Forexample
allthegoodsownedbyyouareprivategoods.Thisincludesyourwatch,pen,scooter,
books,table,chair,bed,clothesetc.Ifyouownafactorythenitsbuilding,machinery;
toolsetcareyourprivategoods.
Publicgoodsarethosegoods,whichareownedandenjoyedbythesocietyasawhole.
Forexampleroads,bridges,park,townhalletc.areallcollectivelyowned.Theyare
availabletoallpeopleinasocietywithoutanydiscrimination,i.e.nooneisdeniedfrom
theconsumptionofpublicgoods.Bothgovernmentandprivateentrepreneursmay
producespublicgoods.

6. ECONOMICS
GoodsandServices
20
Notes
MODULE - 1
Understanding Economics
INTEXT QUESTIONS 3.2
Whichofthefollowingarecorrect?
1. Economicgoodsare-
(a) Thosewhicharescarce
(b) Thosewhichhaveaprice
(c) Thosewhicharescarceandalsohaveaprice
2. Consumergoodsarethosegoods–
(a) Whichhelpinfurtherproduction
(b) Whichsatisfythehumanwantsdirectly
(c) Noneofthese
3. Examplesofproducergoodsare-
(a) Machinery
(b) Tractors
(c) Bread
(d) Rawmaterial
4. Whichofthefollowingstatementsarecorrect?
(a) Freegoodsarethosegoodswhosesupplyismorethanthedemand.
(b) Singleusegoodsarethosegoods,whichareusedoneforall.
(c) Durableusegoodscanbeusedagainandagain.
(d) Publicgoodsarethosegoods,whicharecollectivelyowned.
3.4 ROLE AND SIGNIFICANCE OF GOODS AND
SERVICES IN AN ECONOMY
Goodsandserviceshaveamultidimensionalroletoplayinaneconomy.Theirrolecan
bestatedinrelationto-
1. Humanwants
Youhavestudiedthathumanwantsareunlimitedandtheyarealsoeverincreasing.It
meansiftheavailabilityofdifferentgoodsandserviceslikeclothes,shoes,furniture,

7. GoodsandServices
ECONOMICS
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utensils, television, scooter, fruits, vegetable, food grains and services of doctor,
plumber,electricianetcincreases,itwillsatisfymorehumanwants.
2. Production
Werequireconsumergoodsandservicestosatisfyincreasinghumanwants.Butthis
increase in availability of consumer goods and services depends on the increased
availabilityofproducergoodsandservices.Wecanproducemoreifwehavemoreand
bettermachinery,rawmaterial,tractors,seeds,manureetc.similarlywerequiremore
oftransportationservices,bankingandinsuranceservices.Thusitisthequantityand
qualityofproducer’sgoodsandservicesthatwilldeterminetheavailabilityofconsumer
goodsandservicesinthemarket.
3. Investment
Increase in the production of goods and services will also determine the level of
investment.Giventhequantityofgoodsandservices,apartofitisconsumed,which
satisfiesthehumanwants.Whateverisnotconsumedisusedforfurtherproductionand
itresultsincapitalformationintheeconomy.Iftheproductionofgoodsandservicesis
more,itislikelythattheconsumptionwillbemoreandtheinvestmentwillalsobemore.
Thelargeristhesurplus,thelargeristheproductivecapacityoftheeconomy.
INTEXT QUESTIONS 3.3
Writetrueorfalseagainsteachofthefollowingstatements
1. Consumptionofgoodsandserviceshelpsinthesatisfactionofhumanwants. [ ]
2. Availabilityofgoodsandservicesdependsontheavailabilityofproducergoods.
[ ]
3. Moreproductionresultsinmoreconsumptionandmoreinvestment. [ ]
WHAT YOU HAVE LEARNT
Humanwantsareunlimited.Goodsandservicescansatisfythem.
Freegoodsarethosegoodswhichareavailableinunlimitedquantityanddonot
commandapriceinthemarket.
Economic goods are limited in supply in relation to their demand. They also
commandapriceinthemarket.

8. ECONOMICS
GoodsandServices
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Notes
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Understanding Economics
Freeservicesarerenderedoutoflove,affectionetc.Theycannotbeboughtinthe
market.
Economicservicesaretheservices,whichcanbeboughtinthemarket.
Consumergoodsarethosegoods,whichsatisfyconsumer’swantdirectly.
Bothconsumergoodsandproducergoodsarefurtherclassifiedintosingleuseand
durableusegoodsdependinguponthenumberoftimesthatgoodisused.Ifused
onlyonce,itissingleuseandifusedagainandagainitisdurableusegood.
Consumer services satisfy the wants of consumers directly whereas producer
serviceshelpinthefurtherproductionofgoodsandservices.
Quality and quantity of goods and services determine the level of production,
investment,consumptionandsatisfactionofhumanwants.
TERMINAL EXERCISE
1. Distinguishbetweengoodsandservices.
2. Distinguishbetweeneconomicgoodsandfreegoods.
3. Distinguishbetweenconsumergoodsandproducergoods.
4. Distinguishbetweensingleuseanddurableusegoods.
5. Whatistheroleandsignificanceofgoodsandservicesinaneconomy?
ANSWERS TO INTEXT QUESTIONS
Intext Questions 3.1
1. a, b 2. a 3. b 4. c
Intext Questions 3.2
1. c 2. b 3. a, b, d 4. a, b, c, d
Intext Questions 3.3
1. True 2. True 3. True

9. MODULE-2
ABOUT ECONOMY
4. Economy – Its Meaning and Types
5. Central Problems of an Economy
6. Basic EconomicActivities