Type # 1. Material and Non-Material Goods:
Goods may be material and non-material. Material goods are those which are tangible. They can be seen, touched and transferred from one place to another. For example, cars, shoes, cloth, machines, buildings, wheat, etc., are all material goods.
On the other hand, non-material goods are intangible for they do not possess any shape or weight and cannot be seen, touched or transferred. Services of all types are non-material goods such as those of doctors, engineers, actors, lawyers, teachers, etc. The characteristics common to both material and non-material goods are that they have value and satisfy human wants.
Economic and Non-economic Goods:
Material goods are further divided into economic and non-economic goods. Economic goods are those which have a price and their supply is less in relation to their demand or is scarce. The production of such goods requires scarce resources having alternative uses. For example, land is scarce and is capable of producing rice or sugarcane.
If the farmer wants to produce rice he will have to forgo the production of sugarcane. The price of rice equals the production of sugarcane forgone by the farmer. Thus economic goods relate to the problem of economizing scarce resources for the satisfaction of human wants. In this sense, all material goods are economic goods.
Non-economic goods are called free goods because they are free gifts of nature. They do not have any price and are unlimited in supply. Examples of non-economic goods are air, water, sunshine, etc. The concept of non-economic goods is relative to place and time. Sand lying near the river is a free good but when it is collected in a truck and carried to the town for house construction, it becomes an economic good.
It is now scarce in relation to its demand and fetches a price. There was a time when water could be had free from the wells and rivers. Now when it is stored and pumped through pipes to houses it is sold at a price to consumers. Thus what is a free good today may become an economic good with technological advancement. For example, air which is a free good becomes an economic good when we install air conditioners, room coolers and fans.
Consumers’ Goods and Producers’ goods:
Economics goods are further divided into consumers’ goods and producers’ goods.
1. Consumers’ Goods:
Consumers’ goods are those final goods which directly satisfy the wants of consumers. Such goods are bread, milk, pen, clothes, furniture, etc. Consumers’ goods are further sub-divided into single-use consumers’ goods and durable use consumers’ goods.
(a) Single-use Consumers’ Goods:
These are goods which are used up in a single act of consumption. Such goods are foodstuffs, cigarettes, matches, fuel, etc. They are the articles of direct consumption because they satisfy human want directly. Similarly, the services of all types such as those of doctors, actors, lawyers, waiters, etc. are included under single use goods.
(b) Durable-use Consumers’ Goods:
These goods can be used for a considerable period of time. It is immaterial whether the period is short or long. Such goods are pens, tooth brushes, clothes, scooters, TV sets, etc.
2. Capital or Producers’ Goods:
Capital goods are those goods which help in the production of other goods that satisfy the wants of the consumers directly or indirectly, such as machines, plants, agricultural and industrial raw materials, etc. Producers’ goods are also classified into single-use producers’ goods and durable- use producers’ goods.
(a) Single-use Producers’ Goods:
Theses goods are used up in a single act of production. Such goods are raw cotton, coal used in factories, paper used for printing books, etc. When once used, these goods lose their original shape.
(b) Durable-use Producers’ Goods:
These goods can be used time and again. They do not lose their usability through a single use but are used over a long period of time. Capital goods of all types such as machines, plants, factory buildings, tools, implements, tractors, etc. are examples of durable-use producers’ goods.
The distinction between consumers’ goods and capital goods is based on the uses to which these goods are put. There are many goods such as electricity, coal, etc. which are used both as consumers’ goods and capital goods.
The distinction between single-use goods and durable-use goods has great significance from the point of the economy. The demand for single-use goods is more regular and steady over time and can be predicted in advance. On the other hand, the demand for durable-use goods is irregular and uncertain. It takes much longer time to adjust supply to changes in demand in the case of such goods. This is partly the cause for trade cycles in an economy which produces durable-use goods in large quantities.
Type # 2. Intermediate Goods:
Goods sold by one firm to another for resale or for further production are called intermediate goods. They are single-use producers’ goods that are transformed to manufacture final goods. Intermediate goods are also termed as inputs. Cotton from the fields is sold to the spinning mill where it is transformed into yarn. In turn, the yarn leaves the spinning mill by way of sale to the textile mill where it disappears into a new product, cloth. Again, cloth is sold by the mill to the trader to be sold as final goods.
Type # 3. Final Goods:
On the other hand, goods sold not for resale or for further production but for personal consumption or for investment are called final goods. On the basis of this definition, a particular good or service may be classified intermediate good or final good. For instance, the water sold by the municipal corporation to commercial and industrial undertaking is an intermediate good because it is used by them for further production.
On the other hand, the water sold to individual households is final good because it is used for personal consumption. Similarly, the postal services sold to business houses are intermediate goods and those to households are final goods.
Thus the services of government enterprises and of non-profit institutions should be classified as intermediate or final goods according to the definition given above. What these enterprises and institutions purchase from firms are intermediate goods because they are used in the services they render to final consumers.
When the government buys cement, steel and other raw materials to build roads and bridges, consumers use the services of the roads and bridges which are final goods. The distinction between intermediate and final goods is of much importance in the computation of national income. It is especially so while computing national income by the product method or value added method.