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    Chapter 6

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    Nelly Eureka

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    © All Rights Reserved
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    Chapter 6

    Uploaded by

    Nelly Eureka
    3 views9 pages

    Copyright

    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    3 views9 pages

    Chapter 6

    Uploaded by

    Nelly Eureka

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 9

    Chapter 6

    Classification of goods and


    services
    As Level Ms Nelly
    Classification of goods and services
    Economists classify goods and services into three goods:
    1. A small number of goods and services that are free for everyone to use.
    2. Goods and services that individuals have to pay for through the market
    mechanism.
    3. Goods and services that are provided for everyone by the government.

    Individuals’ consumption of the latter two types of goods and services is


    limited by people’s income and whether the government is able to fund
    people’s wants and needs.
    Excludability and rivalry
     Excludable : other consumers can be prevented from using or consuming it. Ex : latest smartphone that
    you have bought.
     Non-excludable : freely available and nothing can be done to prevent its consumption. Ex : air.
     Rival : only one person can consume it and in doing so the good is not available for other consumers. Ex :
    food.
     Non-rival : the amount available to others does not diminish. Ex : street light.
    Private goods
     Private goods are also known as economic goods since they have a cost in terms of
    the resources used and are scarce. Therefore, a price must be charged when private
    goods are used or consumed.

     Private goods have two important characteristics :


    - Excludability: It is possible to exclude some people from using a private good. This is
    done through charging a price. If the price is not acceptable, then the good will not
    be consumed. Once a private good has been purchased by one person, it cannot then
    be consumed by others.
    - Rivalry: The consumption by one person reduces the availability for others.

     Free goods have zero opportunity cost since consumption is not limited by scarcity.
    Free goods have no prices and no factors of production are required to produce
    them. Example : air
    Public goods
    Public good has two characteristics :
    - Non-excludable : once the good has been provided for one
    consumer, it is impossible to stop anyone else from benefiting
    from the good.
    - Non-Rival : the benefit to those already consuming the
    product must not be reduced.
    Quasi-public goods: public goods that do not meet both of the
    characteristics in full. Example : toll road, beach.
    Problem caused by public good : The market may not produce
    them, free rider problem, scarce resources are not used in a
    way that would be desirable.
    Merit and demerit goods
     A merit good is a good that is thought to be desirable but which is underprovided by the market.
    For example : education, healthcare

     A demerit good is any product that is thought to be undesirable and which is overprovided by the
    market. For example : junk food

     Information failure is when the customer do not recognise how good or bad a particular produt is
    for them

     Example of information failure :


    - Customer are not aware of the benefits or the harmful effects of consuming a particular product
    - Persuasive advertising
    - Product packaging are misleading or inaccurate

     Besides information failure, a further reason for the undercconsumption of merid goods is low
    income.

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