Good (economics)

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Types of goods in economics.

In economics, a good is a material that satisfies human wants[1] and provides utility, for example, to a consumer making a purchase. A common distinction is made between 'goods' that are tangible property (also called goods) and services, which are non-physical.[2] Commodities may be used as a synonym for economic goods but often refer to marketable raw materials and primary products.[3]

Although in economic theory all goods are considered tangible, in reality certain classes of goods, such as information, only take intangible forms. For example, among other goods an apple is a tangible object, while news belongs to an intangible class of goods and can be perceived only by means of an instrument such as print, broadcast or computer.

Utility characteristics of goods[edit]

Goods may increase or decrease their utility directly or indirectly and may be described as having marginal utility. Some things are useful, but not scarce enough to have monetary value, such as the Earth's atmosphere, these are referred to as 'free goods'.

In economics, a bad is the opposite of a good. Ultimately, whether an object is a good or a bad depends on each individual consumer and therefore, it is important to realize that not all goods are good all the time and not all goods are goods to all people.

Types of goods[edit]

Goods' diversity allows of their classification into different categories based on distinctive characteristics, such as tangibility and (ordinal) relative elasticity. A tangible good like an apple differs from an intangible good like information due to the impossibility of a person to physically hold the latter, whereas the former occupies physical space. Intangible goods differ from services in that final (intangible) goods are transferable and can be traded, whereas a service cannot.

Price elasticity also differentiates types of goods. An elastic good is one for which there is a relatively large change in quantity due to a relatively small change in price, and therefore is likely to be part of a family of substitute goods; for example, as pen prices rise, consumers might buy more pencils instead. An inelastic good is one for which there are few or no substitutes, such as tickets to major sporting events[citation needed], original works by famous artists[citation needed], and prescription medicine such as insulin. Complementary goods are generally more inelastic than goods in a family of substitutes. For example, if a rise in the price of beef results in a decrease in the quantity of beef demanded, it is likely that the quantity of hamburger buns demanded will also drop, despite no change in buns' prices. This is because hamburger buns and beef (in Western culture) are complementary goods. It is important to note that goods considered complements or substitutes are relative associations and should not be understood in a vacuum. The degree to which a good is a substitute or a complement depends on its relationship to other goods, rather than an intrinsic characteristic, and can be measured as cross elasticity of demand by employing statistical techniques such as covariance and correlation.

The following chart illustrates the classification of goods according to their exclusivity and competitivenessness.

Excludable Non-excludable
Rivalrous Private goods
food, clothing, cars, personal electronics
Common goods (Common-pool resources)
fish stocks, timber, coal
Non-rivalrous Club goods
cinemas, private parks, satellite television
Public goods
free-to-air television, air, national defense

Trading of goods[edit]

Main article: Trade

Goods are capable of being physically delivered to a consumer. Goods that are economic intangibles can only be stored, delivered, and consumed by means of media.

Goods, both tangibles and intangibles, may involve the transfer of product ownership to the consumer. Services do not normally involve transfer of ownership of the service itself, but may involve transfer of ownership of goods developed by a service provider in the course of the service. For example, distributing electricity among consumers is a service provided by an electric utility company. This service can only be experienced through the consumption of electrical energy, which is available in a variety of voltages and, in this case, is the economic goods produced by the electric utility company . While the service (namely, distribution of electrical energy) is a process that remains in its entirety in the ownership of the electric service provider, the goods (namely, electric energy) is the object of ownership transfer. The consumer becomes electric energy owner by purchase and may use it for any lawful purposes just like any other goods.

For Finnis there are seven basic goods; life, knowledge, play, aesthetic experience, sociability of friendship, practical reasonableness and religion. Life for Finnis involves all aspects of vitality that enable a person to gain strong willpower. The second aspect of well-being is knowledge and is described as the pure desire to know, simply out of curiosity, as well as a concerning interest and desire for truth. The third aspect, play, is regarded as self-evident as there is no real point of performing such activities, only for pure enjoyment. Aesthetic experience is the fourth aspect and is considered similarly to play however; it does not essentially need an action to occur. The fifth aspect for Finnis is sociability where it is realised through the creation of friendships, that these relationships are fundamental goods. Practical reasonableness is the sixth basic good where it is one’s ability to use their intellect in deciding choices that ultimately shape one’s nature. The final basic good is religion; it encompasses the acknowledgment of a concern for a simplified distinct form of order, where an individual’s sense of responsibility is addressed.

As the basic goods, and practical reasoning principles, are features of one’s well being the question is asked as to what are the basic aspects of well being. The basic goods are ideals to be achieved and perused whereby this view enables one to see the good and bad actions available. This knowledge effects a person’s practical reasoning regarding the different accessible forms of good that they can decide. The real question for Finnis is, ‘Whether something is a good in and of itself.’ Legal theorist Russel Hittinger provides that the goods are then broken down into being either substantive or reflexive. Life, play and knowledge are substantive goods where sociability, aesthetic experience, practical reasonableness and religion are reflexive. He continues by stating that reflexive goods are defined in conditions of human choice where substantive goods provide reasons for making choices. Although Finnis provides that the basic goods are not to be considered as moral values. Finnis concludes that the basic goods should be considered as fundamentally good, where these ideals are good for their individual purpose and not an instrumental purpose.

After discussing the basic goods it is argued that within the list there is no hierarchal order, as the basic goods are considered impossible to compare or measure. Finnis believes the goods are equally self-evident. Each of the basic goods can be considered the most important, as none of them can be reduced to simply a mechanism of achieving another. While technically the goods can be treated as superior to one another Finnis provides that each good is still fundamental where no priority value exists. Finnis asserts that, ‘These choices constitute a life plan that subjectively orders the basic goods for the individual but the fundamental nature and intrinsic value of the goods themselves is not changed by this

See also[edit]

Notes[edit]

  1. ^ Quotation from Murray Milgate, [1987] 2008, "goods and commodities, " The New Palgrave Dictionary of Economics, 2nd ed., preview link, in referencing an influential parallel definition of 'goods' by Alfred Marshall, 1891. Principles of Economics, 2nd ed., Macmillan.
  2. ^ Alan V. Deardorff, 2006. Terms Of Trade: Glossary of International Economics, World Scientific. Online version: Deardorffs' Glossary of International Economics, "good" and "service".
  3. ^ Alan V. Deardorff, 2006, Deardorffs' Glossary of International Economics "commodity".


References[edit]

  • Bannock, Graham et al. (1997). Dictionary of Economics, Penguin Books.
  • Milgate, Murray (1987), "goods and commodities," The New Palgrave: A Dictionary of Economics, v. 2, pp. 546–48. Includes historical and contemporary uses of the terms in economics.