In economics, everything that serves to satisfy needs is seen as a good. In this respect, goods represent the complement to needs. The production and distribution of goods are central to human existence and the object of both individual and collective actions, conflicts and goals. Questions of the production of goods deal, for example, with efficiency, division of labour and external effects. The distribution of goods can take place in particular through markets, negotiations, hierarchies/authority and selection decisions. It touches on categories such as equity, transaction costs, social dilemmas and principal-agent problems. Because of their social significance, questions of the production of goods (for example, private or state ownership of the means of production) and the distribution of goods (through free or regulated markets, goods receipts, etc.) are central to the design of economic systems.
The multitude of goods can be classified according to different criteria, depending on the question posed, some of the most relevant for economic education will be briefly presented:
- Availability of goods: Free vs. scarce goods
Free goods are available at any place at any time in the desired quantity. They have no price or they cause no costs and are available in such large quantities that everyone can consume as many free goods as they want. Free goods that actually meet these criteria are very rare. Even the typical example of breathing air is not unproblematic, since breathing air is available in smog-ridden cities, for diving or space travel in a limited quantity, or its consumption is associated with costs.
In contrast, most goods are limited and have a price or cause costs, which is why they are also called economic goods. As a rule, they can be exchanged or traded. From the scarcity of goods and the assumed infinity of human needs, it can be deduced that they should be handled as efficiently, sparingly and rationally as possible.
- Exclusivity and rivalry
The criterion of exclusiveness or exclusivity expresses whether a good can only be used by a clearly defined group or whether the exclusion of other groups of people is not possible (with reasonable effort). Examples of non-excludable (or difficult) goods are air, national defence or dikes.
Rivalry expresses whether the use of a good by one person hinders its use by others. For example, the consumption of a foodstuff is characterised by rivalry because it can no longer be eaten by other persons. In contrast, a radio broadcast is not subject to rivalry because any number of people can listen to the broadcast without affecting the reception quality of others.
The combination of these two criteria results in a four-field matrix with specific types of goods:
Private goods such as clothes, cars etc. can be traded on markets. They can usually only be shared with others with disadvantages (rivalry), which is also the case with collective goods. In the case of the latter, it is difficult to exclude others from using them (low exclusivity), for example fish stocks in lakes/oceans with poorly controllable access or the use of roads, where rivalry also exists, since traffic flow suffers as use increases. Problems related to collective goods often show the structure of social dilemmas. Examples of public goods are the already mentioned dikes or national defence measures, which also benefit everyone, but without the disadvantages of a higher number of profiteers. Public goods are usually provided by the state, especially because it is difficult to allocate costs to specific users. In the case of club goods in contrast the exclusivity makes it possible to allocate costs to users, for example in the case of pay-TV. In individual cases, there may well be difficulties in distinguishing between the types of goods (as with other classifications), which need not be overly problematic, as the categorisation is primarily intended to structure the ideas.
- Demand behaviour
Demand for goods is initially dependent on price, whereby for normal goods the quantity demanded decreases as the price rises (negative price elasticity), while for so-called Giffen goods (absolutely inferior goods with positive price elasticity) it increases.
Another influence on the demand for goods is income. Thus, inferior goods are less in demand with increasing income, normal goods somewhat more and superior goods disproportionately in demand (in relation to income growth). For example, the demand for cheap food (inferior goods) decreases with rising income, while the demand for organic food (superior goods) increases.
In addition, the prices of related goods have an influence on demand. If the price of complementary goods - i.e. goods that complement each other in their use, such as razors and razor blades - decreases, demand for the other good also increases. In contrast, a price reduction for substitution goods - i.e. goods that can be exchanged quite easily, such as ham and meat - leads to a reduced demand for the substitution good.
- Information asymmetry
This criterion expresses how strong the information advantage of one transaction partner is over the other (for example, the seller usually has more product information than the buyer).
If the quality of search goods such as clothing or smartphones can already be determined during the product search before the purchase, in the case of experience goods this is only possible after the purchase on the basis of the experience gained with them, which
for example, during restaurant visits or a haircut at hairdressers. In the case of trustworthy goods, the quality of the product is difficult or impossible to assess even after purchase, as the effects only become apparent at a late stage or a clear explanation of the cause and effect is not possible due to a variety of influencing factors. Examples would be drugs and a multitude of complex services such as those provided by doctors, management consultants or lawyers.
Information asymmetries increase transaction costs in the form of information procurement and control costs and can also lead to the collapse of markets. Companies can try to reduce the problems of information asymmetry that arise for the customer, for example by granting a right of return, giving guarantees and building trust through a strong brand. Legal consumer protection measures (e.g. reversal of the burden of proof in the purchase of consumer goods, warranty obligations, regulations on distance selling contracts) can also reduce the problems of unequal information.
In addition to the criteria discussed for the classification of goods, there are others which are of secondary importance for economic education and are only briefly listed here without claiming to be exhaustive: Materiality (tangible vs. intangible goods), intended use (consumer vs. production goods), useful life (durable vs. non-durable consumer goods), tradability.
Knowledge about goods and their properties is important for economic education, because ...
- goods serve to satisfy the needs of consumers;
- they are the object of the production process;
- external effects and social dilemmas may arise in the production and consumption of goods;
- their distribution raises questions both about efficiency and equity and about appropriate forms of organisation (e.g. via markets or state-planned measures);
- (Economic) goods are scarce, which suggests the rational and efficient use of them and thus justifies the necessity of economic activity.