Goods

I. Based on Ownership

1.Public Goods

• Which is available for everyone without any competition & without any exclusion
• No competition, No exclusion
• No one can be prevented from consuming them, and individuals can use them without reducing their availability to other individuals.
• Examples of public goods include fresh air, knowledge, national defense, street lighting, Roads, Jungle etc.
• Need govt to operate them
• Can be Intagible too, like some common ethical values – Trust in a society
• Digital public Goods – Cowin Platform, Digi Locker

2.Private Goods

• Have an element of exclusion & Competition.
• Are excludable and rival.
• They have to be purchased before they can be consumed.
• Thus, anyone who cannot afford private goods is excluded from their consumption.
• The consumption of private goods by an individual prevents other individuals from consuming the same goods. Therefore, private goods are also considered rival goods.
• Examples of private goods include ice cream, cheese, houses, cars, etc

3.Club Goods

• Are excludable but non-rival.
• Thus, individuals can be prevented from consuming them, but their consumption does not reduce their availability to other individuals (at least until a point of overuse or congestion is reached).
• Club goods are sometimes also referred to as artificially scarce resources.
• They are often provided by natural monopolies.
• Examples of club goods include cable television, cinemas, wireless internet, toll roads, OTT subscription, Gym in a society etc.

4. Common resources

• Products or resources that are non-excludable but rival. That means virtually anyone can use them.
• However, if one individual consumes common resources, their availability to other individuals is reduced.
• The combination of those two characteristics often results in an overuse of common resources (see also the tragedy of the commons).
• Examples of common resources include freshwater, fish, timber, pasture, etc.

• The more the Public Goods in an economy, the more is the role of Govt.
• J M Keynes – focussed on providing public goods
• 1989 – Washington consensus – Recommended LPG (Focus on Private Goods)
• 2010 – Digital Private Goods

II. Classification based on Consumption

1.Capital Goods

• Capital goods are assets used by a business to produce goods or services for consumer goods or use by other businesses.
• Those goods which will increase our income. Eg – Machinery.
• These are not consumed directly but are used to produce other Goods.
• They are generally durable goods that can be used more than once.
• The most common capital goods are property, plant, and equipment (PPE).
• Natural resources not modified by human hands are not considered capital goods.

2. Consumption Goods (Final Goods)

Consumer Durable

• A final good is a product that the final consumer uses or consumes.
• The good or the product does not require any additional or further processing.
• A company will make a final good for they can be used directly by the final consumer.
• Consumer Durables with life ≥ 3 years. Eg – Car , AC.
• They have reasonable sale value

Consumer Non Durables

• Life < 3 yrs. Eg – Food , Clothing.
• As shelf life is faster, they are consumed faster and replenished faster. Hence, they are called FMCG. Eg – Dabur, Patanjali

White Goods

• White goods are large home appliances such as refrigerators, washing machines and stoves that were traditionally made in a ceramic white color.
• Sub category of Consumer Durables.
• Govt tries to focus on import of white goods as their imports are high. Govt has PLI schemes.

3. Intermediate goods

• Intermediate goods are unfinished items that need to undergo further processing before businesses can sell them to consumers.
• They come inbetween Capital Goods and Consumption Goods.
• Many items can be intermediate or final goods, depending on the context.
• Eg – Truck – Capital good. Tyre _ Intermediate Good.

III. Based on the Law of Demand

Law of Demand

• The law of demand states that there is an inverse relationship between price and quantity demanded.
• The law of demand states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other.
• When the price of a product increases, the demand for the same product will fall.
• Law of demand explains consumer choice behavior when the price changes. 
• This is the natural consumer choice behavior. This happens because a consumer hesitates to spend more for the good with the fear of going out of cash.

Goods which are Exceptions to the Law of Demand

1.Giffen Goods

• Concept that was introduced by Sir Robert Giffen.
• Giffen Goods are Non Luxurious but basic goods which are important for day to day life.
• Their Demand increases even when the price increases. This is the exception.
• Eg – Bread, Salt, Potatoes
• If the prices increase, people will start storing them (with the assumption that prices may go up further)
• If giffen goods get costly, common man will face the heat.

2. Veblen Goods

• There are certain goods that become more valuable as their price increases.
• If a product is expensive, then its value and utility are perceived to be more, and hence the demand for that product increases.
• And this happens mostly with precious metals and stones such as gold and diamonds and luxury cars such as Rolls-Royce.
• As the price of these goods increases, their demand also increases because these products then become a status symbol.

3. Substitute Goods 

• Substitute Goods are those goods which are used in place of one another to fulfill a specific need or want.
• The price of substitute goods directly affects the demand for a given commodity.
• For example, if the price of a substitute good (say, coffee) increases, then demand for the given commodity (say, tea) will increase as compared to coffee.
• Also called as Alternative Goods – As they are used as alternative, whenever the price of any given good increases.

4. Complementary Goods

• The goods which are used together to satisfy a specific want, like bread and butter are known as Complementary Goods.
• The price of a complementary good and demand for the given commodity inversely relates to each other.
• For example, if the price of a complementary good (say, butter) increases, then demand for the given commodity (say, bread) will decrease as it will become costlier for the consumer to use both goods together. 

5. Inferior goods

• An inferior good is one whose demand drops when people’s incomes rise. Eg – using cigarette instead of Bidi as Income rises.
• When incomes are low or the economy contracts, inferior goods become a more affordable substitute for a more expensive good.
• Inferior not in terms of Quality but in terms of Perception of People.
• If in a country demand for this good is falling, then it shows the overall incomes of people are rising

6. Pigovian Goods

• Those which have a negative impact on the health or detrimental to the health or adverse to the society.
• Also called as Sin Goods.
• Eg – Liquor, Gutka
• Their elasticity is less. Even if the price increases, their demand doesn’t change. Only if price increases very significantly, then demand falls slightly.
• Govt increases tax on these goods when it wants to increase its revenue. Eg – GST Compensation Cess.
• Pigovian Tax – Tax on Pigovian Goods. Eg – Govt increased VAT on Liquor during Covid.

7. Network products

• Network product is one where production processes are globally fragmented and controlled by leading Multi-National Enterprises (MNEs) within their producer driven global production networks.
• Different parts of a good are produced in different countries
• Eg – Almost 43 countries are involved in the production of 1 iphone.

The Law of Supply

• It states that, all other factors being equal, as the price of a good or service increases, the quantity of that good or service that suppliers offer will increase, and vice versa.
• The law of supply says that a higher price will lead producers to supply a higher quantity to the market.
• Because businesses seek to increase revenue, when they expect to receive a higher price for something, they will produce more of it.
• Meanwhile, if prices fall, suppliers are disincentivized from producing as much.

The invisible hand Theory

• The term “invisible hand” first appeared in Adam Smith’s famous work, The Wealth of Nations, 
• To describe how free markets can incentivize individuals, acting in their own self-interest, to produce what is societally necessary.
• In the market, the law of demand and law of supply works in such a way to meet what the needs, as if some invisible hand is making it all happen. It brings out the balance.
• The invisible hand is part of laissez-faire, meaning the “let do/let go,” approach to the market. In other words, the approach holds that the market will find equilibrium without government or other interventions forcing it into unnatural patterns.

Services

• A service is something intangible, which can’t be physically touched or stored.

Types of Services:

1. Business Services/ General Services

• Support the daily functioning and activity of any business but is not a commodity. Eg – transport, trade & Telecom. etc.

2. Professional Services

• Services rendered by professionals.
• Doctors, Financial Services (Given by banks, stock markets), Architects.
• Also involves associated services like Security, Housekeeping, real estate etc

Real Sector vs Financial Sector

• The activities of the real economy are essential to life.
• The real economy produces food, heating, lighting, consumer goods and entertainment, among other activities.
• The job of the financial system is to facilitate that by making sure that funds are available when and where they are wanted.
• Thus, the financial sector is the economy’s money issuing sector;
• The real sector is the economy’s money holding sector; the general government sector is not a money holder, despite it may influence the quantity of money through its operations, transfers; produce nonmarket goods and services.