Goods are tangiable items which satisfy human wants and needs. Humans find them important and desirable so they make efforts to acquire them. In modern economies goods are classified into three main categories namely,1. pure private goods 2. pure public goods 3. mixed(quasi/public) goods and they are outlined in the passage below. Pure private goods These are all the goods produced by private companies whose aim is to make a profit and they are used exclusively for the satisfaction of private needs for example food,clothing and property.
They are not free goods,they come with a price and cannot be substituted with other goods. One of the features of pure private goods is that they are produced by private firms whose main aim is to make a profit. These private firms identify individuals’ private needs for example clothing and then they undertake intreprenuerial activities to satisfy them while at the same time earning profit. Private firms compete against each other in order to get a higher market share and consequently this results in high quality goods being produced. The second feature is that these goods are distributed in the market against a price.
Access to these goods is not free but implies a cost called a price which the firms charge on consumers. The price is established by the free interplay of market forces,demand and supply. The market brings together producers and consumers who are both willing and able to buy the goods. Pure private goods are also financed out of private revenues. For the costs which the firms incur,they pay out of their private funds which are usually the proprietor’s capital and retained profits. When these are not sufficient,they can get some bank loans. These goods are also excludable.
Only those indviduals who pay for them get to consume them. Those without income,with different tastes and preferences as well as those incompatible with some technical features of the products are denied the chance to consume them. Someone who cannot afford a car may opt for public transport or bicycles,and thus,he is excluded from using the good (car). They are also rivalrous. An increase in the units of goods consumed results in an increase in cost. An example is an increase in demand for bread,for a bakery to produce the additional loaves to meet demand,the costs of electricity,rent and labour will also increase.
Pure public goods These are goods produced and distributed by state owned companies or public institutions whose scope is to provide goods and services in a way that is both accessible and affordable to all. They can be consumed by individuals or companies but do not lead to a reduction in the consumption volume of others for example street lighting. Pure public goods are produced directly by the government or private firms under lease. The state sees these as very important and should be provided to all so it remains the sole provider to ensure these are available to everyone at low and affordable prices.
An example is justice which is soley provided by the government. At times it leases some private firms to provide some strategic services for example garbage collection. Unlike pure private goods,their provision is financed out of compulsory tax revenues. These come in different forms for example income tax and coperate tax which individuals and companies pay respectively. This income is then channelled towards the provision of pure public goods for example construction of public roads. However,the income collected this way may not be enough so the difference is paid out of the state budget.
These goods are distributed through the public budget. The government identifies the public needs and makes priorities as to which ones can be satisfied first according to the ammount of resources at hand and the importance of certain goods to the public. For example,a leaking sewer pipe in a city maybe repaired first before constructing a new road since public health is more important. Pure public goods are also non-excludable meaning that not any single member of the society can be denied the consumption of these goods for example police services. Because of this,they remain entirely in the hands of the government.
Everyone benefits whether or not they make contributions through compulsory taxes and cannot deny these utilities. The degree of exclusion for these goods depends on the technical features and resources available to the producer. An example is the government failing to construct a road in a certain location due to inadequate construction resources. The consumption of these goods is non-rival,meaning that their costs do not increase due to an increase in the number of the consumers. This comes about since by nature,the products cannot be divided for example national defence.
It is not possible to provide defence for a certain group of people and isolate the rest but instead,it is collectively enjoyed and the cost of providing defence does not increase due to an increase in national population. Mixed (quasi public) goods Mixed goods are the halfway house between public and private goods. They are like private goods in that they are rivalrous and excludable but they provide significant non-rivalrous non-excludable external benefits for which preferences are not revealed by the market mechanism for example health,education and fire service.
Individual ownership claims to these goods are minimal. A feature of mixed goods is that they are collectively enjoyed for example education. When a person is educated he receives a benefit from this, which is expressed in terms of higher earnings and improved job prospects. However, the community as a whole also benefits from the individual’s education, in that his productivity is enhanced, which is good for everyone. Mixed goods are also produced by the government and or by private firms for example education.
The government owns some educational institutions at low or zero costs while others are private and profit making. The government provides the basic education to individuals and those who want to advance or to get superior services have to enrole into private institutions and they pay a higher price for the srevices. These goods are also distributed through the budget or market. For the part which the government is responsible for producing,it distributes them through the state budget by means of prioritising public needs and moderating the resources available.
It also seeks to ensure that they are provided at affordable prices. Private companies also distribute goods according to their own private resources and they do this through the market. Mixed goods are also financed from sales’ revenues and other revenue generating activities. Private firms get their income from sales turnover and they use it to produce more goods and services. However,government parastatals may have lower revenues since their prices should be low and affordable to all unless if they privatise or lease to private companies.