Unit 1.6 - Types of goods

• Free goods


  Unlimited in supply, supply > demand, an abundant free gift from nature, no access restrictions
• Economic goods


  Limited in supply, supply < demand, a useful item in demand, has a price
• Types of economic goods

  • Capital goods (fixed assets like machinery, used in production)
  • Consumer goods (bought in shops as a final good, e.g. groceries)
• Excludability


  Where it is possible to stop someone from using a good or service
• Rivalry


  Where consumption of a good or service reduces its availability to someone else
• Private goods


  Excludable, rival
• Public goods


  Non-excludable, non-rival

  
• Quasi-public goods


  Do not meet the characteristics of non-excludable and non-rival in full

  
• Free-rider problem is a concept of market failure, when people enjoy the benefits of a public good without having paid for them
• Market failure


  When free markets fail to produce goods and services that are worthwhile or when the decisions of producers or consumers result in wasteful or harmful activities
• Causes of market failure

  • Firms will only produce goods and services if they are profitable
  • Firms will only supply products to consumers who are able to pay for them
  • Resources will only be employed if it is profitable to do so
  • Harmful goods may be produced if it is profitable to do so
  • Some producers and consumers may ignore the harmful effects of their activities on others and the environment
  • Some firms may restrict competition, mislead consumers and charge them very high prices
• Merit goods


  A good which is thought to be desirable, but is underprovided for by the market as it is not profitable, usually provided by government, consumers do not fully perceive the benefits
• Demerit goods


  A good which is thought to be undesirable, but is over provided for by the market and over consumed
• Information failure


  A type of market failure where individuals or firms have a lack of information about economic decisions, leading to ineffective allocation of resources
• Underconsumption of merit goods


  Consumers do not recognise how good a product is for them due incorrect information or lacking some information, could also be due to lack of income to purchase merit goods
• Overconsumption of demerit goods


  Consumers do not recognise the harmful effects of a product due inaccurate information or persuasive advertising