Goods and Services: Simple Examples in Economics

Think of taking a car to a mechanic. When the mechanic discovers that your car needs a new tire, they will charge you for both the tire itself and the labor for putting it on your car. The tire is the good, and installing it is the service. You need both to keep your car running.

The same goes for an economy. Whether you're purchasing goods or paying someone for a service, both are needed to keep a strong economy running. People use money to pay for goods and services in a market economy.

Goods are material items that you can purchase. Anything that you can find in a grocery store, farmer's market, shopping mall, home improvement shop, or any other store is a good. The prices of goods are largely determined by the supply and demand of an economy.

There are four types of goods: private goods, common goods, club goods, and public goods. They vary in their level of exclusivity; that is, how many people can enjoy them.

Private goods are excludable goods, which means that consumers cannot use them without paying for them. They are also rival goods, which reduces availability for other consumers. If someone wants to wear a shirt, for example, they must buy it (excludable) and they reduce the amount of shirts available to others (rival), resulting in scarcity.

Examples of private goods are:

• fruits
• vegetables
• cell phones
• train tickets
• televisions
• dinner at a restaurant
• coffee from a coffee shop
• cars
• ticket to a show
• clothing
• makeup

A consumer buys these goods and uses them to improve their own lives. They can transfer them to another consumer if they like, but the goods only belong to one consumer at a time.

Unlike private goods, common goods are non-excludable, so everyone can use them without paying. They are rival, so there is a finite supply that can be used by consumers.

Examples of common goods include:

• freshwater
• fish for fishing
• wildlife to hunt
• timber from trees
• wildflowers to pick
• fresh air
• park benches
• coal

As you can see, these common goods are primarily found in nature. It may seem like they are limitless, but overuse can lead to a tragedy of the commons: the sacrifice of long-term sustainability for short-term use (for example, overfishing or polluting the air).

Club goods are the opposite of common goods. They are excludable, so consumers must pay for them, and they are non-rival, so there is not a finite supply that can be diminished.

Here are some examples of club goods:

• streaming services
• country clubs
• newspaper subscriptions
• gym memberships
• ability to view a movie in the theater
• ability to visit a theme park
• insurance coverage

Basically, if you're paying for access that others pay as well, you're receiving a club good. This one can be confusing because it seems like streaming services and newspaper subscriptions are services, not goods. However, you are paying for the product in these cases, not an action — making it a good.

Public goods are non-excludable and non-rival. They are available to everyone and are not in danger of running out.

Examples of public goods include:

• air to breathe
• national defense
• street lights
• libraries
• wildlife to view
• nature to visit
• mountains to climb
• public beaches
• education

Every country has a different definition of public goods for its citizens. Some countries consider healthcare a public good, while others consider it a club good. It depends on what type of economy you are talking about.

Unlike goods, services are activities. The biggest difference is that goods are produced, while services are performed. Services are:

• intangible - you can't touch, manufacture or store services
• perishable - they are performed in the moment and finished when they are over
• inconsistent - not able to be repeated exactly between services (changes in time, location, resources, conditions, and so on)

For example, you can't store the act of a butcher cutting your meat. It is a service because it's happening at that exact moment, and because the butcher isn't able to repeat the exact service for the next customer (the cut of meat, sharpness of the knife and timing would be slightly different). The meat is the product that you pay for, and the cutting is the service that you pay for.

There are three main types of services, based on their sector: business services, social services and personal services.

A business service is a service in which another business is the consumer. These services allow a business to operate and best serve its customers.

Examples of business services include:

• banking
• technology support
• human resources
• transportation
• public relations
• legal representation
• manufacturing
• marketing
• security
• insurance

Businesses pay for these services, which keep them in business. They are not receiving a product that they can keep; as soon as they stop paying for the service, it stops.

Social services benefit society as a whole. They're paid for by taxes and nonprofit organizations rather than direct transactions.

Here are examples of social services:

• fire service
• police
• education
• social work
• food subsidies
• foster care
• animal welfare

You may notice that items like "education" appear in both goods and services. A teacher standing in front of the class educating you is a service; the education you receive as a result is a good.

Most business-to-customer services are categorized under personal services. Customers pay money to a business or individual and receive a service in exchange.

Examples of personal services include:

• doctor's visits
• haircuts
• pedicures
• legal advice
• surgery
• house cleaning
• babysitting
• therapy sessions
• food delivery

Like in all services, personal services are intangible, perishable and inconsistent. For example, you can pay a doctor to perform a medical procedure, but you are not buying the doctor. When they are finished with the procedure, the transaction is complete.

The decision to exchange money for goods or services is just that: a decision. Every economy reflects a series of choices for consumers, businesses, societies, and governments. Learn more about the consequences of various decisions with these examples of opportunity costs. Or, if you'd like to learn more about goods, check out the marginal utility for various products.