The way that economic goods are distinguished from free goods is based entirely on the concept of scarcity. If goods are freely available in abundance, such as the air we breathe or the love we have for our children, then these are free goods. If scarce resources are expended in order to produce goods for the market, then these are economic goods.
In this article, I will explore the various categories of economic goods, including tangible and intangible goods, durable and non-durable goods, and consumer and capital goods. I will also examine how consumer preferences and demand play a crucial role in shaping the market.
Free goods are sometimes confused with products or services that are provided to consumers at no cost. These can include anything from samples to trials, online courses, software, and more. Such goods & services are often used as a marketing tool, as companies offer them as a way to attract new customers or to encourage existing customers to try new products. They can also be used as a way to gather feedback and improve products or services.
However, these are not free goods in the economic sense, because scarce resources had to be used in order to create them, regardless of the zero price that is charged to consumers at the point of use.
There are four types of economic goods that are defined according to their nature i.e., rival or non-rival, and excludable or non-excludable.
Private goods are simply those goods and services that are purchased by private individuals rather than the government. Examples include food stuffs, repair services, personal services like hairdressing, physical products like smartphones and so on. These goods are usually most efficiently provided by free-markets as a result of millions of interactions between buyers and sellers.
These goods are both rival goods and excludable goods e.g., when a consumer buys an apple, he denies any rival consumers from buying that particular apple, and when eats it he excludes other people from being able to eat it.
Examples of public goods include national defense, law & order, tap water and so on. These are usually provided by the government via general taxation; in other words, they are paid for by the public. Usually, though not always, a public good is provided by the government because it is both a non-rival good and a non-excludable good. Such goods are not easily provided efficiently by market forces.
Street lighting is the textbook example of a public good, because it has both non-rival and non-excludable properties. It is a non-rival good because motorists and pedestrians can consume the same lighting without causing any lessening of consumption by other motorists and pedestrians. It is also non-excludable, because purchasers of street lighting cannot prevent non-purchasers from also consuming it.
Home-lighting, on the other hand, differs because it is excludable to some extent i.e., while a room that is lit by a lightbulb is non-excludable to other people in the room, it is excludable to people who are not in the room. In this sense home-lighting is excludable at the household level, but not at the level of the individuals within the household.
Common resource goods refer to natural resources like fossil fuels and fisheries. In modern economies access to these resources is typically controlled to some extent via license requirements and quotas, meaning that they are somewhat excludable. However, in the absence of such controls these resources are rival goods but non-excludable.
The rival nature of these goods, and the ease of access to them, means that they are usually overused and over-consumed. This is referred to as the ‘tragedy of the commons’.
Club goods are goods and services that are non-rival goods but that are excludable. For example, a golf club offers golfing as a non-rival good because golfers who use the golf course do not depreciate it in any way (assuming that it is well-maintained by the club). However, non-members of the club are excluded from playing on the course.
Other examples of club goods include Netflix subscriptions, bowling alleys, ice-rinks, gymnasiums, go kart tracks and so on. As the name suggests, club goods are usually only available to club members, and a membership fee usually applies.
Tangible goods are those that can be physically touched or experienced. Intangible goods, on the other hand, cannot be physically touched, instead they provide value through experiences or services, such as software, insurance, or a haircut.
Another important distinction among economic goods is between consumer goods and capital goods. Consumer goods are those that are purchased by individuals for their personal use or consumption. These can range from everyday items like food and clothing to luxury products like designer handbags or high-end electronics. Consumer goods are directly purchased by the end consumer and are primarily intended for personal satisfaction or utility.
On the other hand, capital goods are goods that are used by businesses to produce other goods or services. These can include machinery, equipment, or even buildings. Capital goods are not directly consumed by the end consumer but are essential for the production process. The demand for capital goods is derived from the demand for consumer goods. For example, a bakery requires ovens and mixers as capital goods to produce bread and pastries for consumers.
Necessity goods are essential items that consumers need for their basic survival or well-being. These can include food, water, shelter, and healthcare. The demand for necessity goods is relatively stable and less affected by changes in income or economic conditions. Consumers are willing to allocate a significant portion of their budget towards these goods, simply because they are essential.
On the other hand, luxury goods are non-essential items that are associated with high quality, exclusivity, and status. Luxury goods often have a higher price tag due to their perceived value and the prestige they offer to consumers. Examples of luxury goods can include high-end fashion items, luxury cars, or luxury vacations. The demand for luxury goods is more sensitive to changes in income and economic conditions, as consumers may cut back on luxury purchases during times of financial uncertainty.
Convenience goods are goods that consumers purchase frequently and with minimal effort. These are often low-priced items that are readily available in most retail outlets. Examples of convenience goods can include everyday household items like toothpaste, snacks, or cleaning products.
Shopping goods, on the other hand, are goods that consumers purchase less frequently and require more effort in terms of research and comparison. These goods are often higher-priced and consumers may spend more time comparing different brands, features, and prices before making a purchase decision. Examples of shopping goods can include electronics, furniture, or clothing.
Specialty goods, which are unique or niche products, cater to specific consumer preferences or interests. These goods are often associated with a specific brand or retailer and may not be readily available in all retail outlets. Examples of specialty goods can include high-end luxury watches, gourmet food items, or collector's items.
Durability is another important factor to consider when it comes to economic goods. Durability refers to the ability of a good to last over an extended period of time or through repeated use. Durable goods are those that are designed to withstand wear and tear and have a longer lifespan. Examples of durable goods can include appliances, furniture, or vehicles.
On the other hand, non-durable goods are those that are consumed or used up relatively quickly. These goods are often perishable and have a limited lifespan. Examples of non-durable goods can include food, beverages, or personal care products.
Consumer preferences for economic goods are influenced by a variety of factors. These can include personal factors, such as individual tastes, values, and lifestyle choices. For example, some consumers may prioritize sustainability and eco-friendly products, while others may prioritize convenience or price.
Social factors also play a significant role in shaping consumer preferences. Social influences, such as family, friends, or social media, can impact consumer decisions and create trends or fads. Cultural factors, such as cultural norms, traditions, or beliefs, can also influence consumer preferences for certain types of goods.
Economic factors, such as income level, purchasing power, and economic conditions, can also influence consumer preferences. Consumers with higher incomes may have more disposable income to spend on luxury goods, while consumers with lower incomes may prioritize affordability and value.
Price is a key factor in consumer purchasing decisions and can greatly influence consumer appeal for economic goods. Consumers often consider the price of a product or service in relation to the perceived value or benefits they will receive. Price can signal quality, exclusivity, or affordability to consumers.
For some consumers, a lower price may be the primary driver of purchasing decisions. These consumers are often price-sensitive and prioritize affordability. Businesses that offer competitive prices or discounts may appeal to this segment of consumers.
On the other hand, some consumers are willing to pay a higher price for goods or services that offer superior quality, unique features, or a premium experience. These consumers may associate a higher price with higher value or exclusivity.
There is a wide range of characteristics that distinguish one economic good from another, and this leads to many different labels being attached to describe them. I’ve discussed most of the more common types in this article, but there are many more that I’ve not mentioned.
One thing to keep in mind is that all of these different names that are attached to different sorts of goods is distinct from the four main types of goods. Whether a good is tangible, durable, a specialty, a luxury or a Giffen good, they all slot into one of the four main types described above depending on their excludability and their rivaly.
Free goods are a different thing altogether, because they do not relate to the problem of scarcity.