Basic Economic Terms and Concepts

Basic Economic Terms and Concepts

Many terms are used in ordinary speech are also used in economics but they are used in a different sense. Therefore it is essential to explain those terms not only for clear thinking but also for correct understanding of the language used in books on Economics. Following some terms which are frequently use in economics have been explained in what sense they are used in Economics.

Goods: Any thing that can satisfy a human want is called a ”good" in economics. Goods may be commodity or services; they satisfy human wants which are the starting point of all economic activity.

Kinds of Goods: The classification of goods cans be done in different ways as discussed below.

1) Economic goods and Free Goods:

Free goods are those goods that exist in such plenty that can be used as much as we like. They are gift of nature and used without payment e.g. Air, sunshine etc. with out payment e.g. Air, sunshine etc

The economic goods, on the other hand, are scarce and can be had only on payment. They are limited and generally man made and hence those can be available only on payment. In Economics, we are concerned with economic goods. Economic goods mean wealth. Thus there would have been no science of economics if all goods had been free goods. The distinction between free goods and economic roods, of course is not permanent, for instance air is free goods but when we receive it under fan it is economic goods.

2) Consumption Goods and Capital Goods:

Consumption goods are those which yield, satisfaction directly. They are used by consumer directly to satisfy the wants e.g. food, clothing, etc. (First order goods).

Capital goods are these goods which help us to produce other goods e.g. machinery, tools etc. They are also termed as second order goods. Similarly some goods especially raw materials are called as intermediate goods. For instance machinery fixed in factory is capital gods but the cotton used as raw material is intermediate goods. Thus, the consumption goods are also referred as consumer’s good while capital goods and intermediate goods are termed as producers goods.

3) Material Goods and Non – material Goods:

Material good are concrete in nature e.g. building, furniture, books etc.

While different services a human being is using called non material services. E.g. services of teachers, Doctor, advocate etc.

4) Transferable and Non Transferable Goods:

Most of the material goods can be transferable. Here transferable means change in ownership e.g. land, vehicle etc.

On the contrary non-transferable goods referred to personal qualities like skill, intelligence etc. which never be transferred.

5) Personal and Impersonal Goods:

Personal goods refer to personal qualities of a person and they are non material and exist inside him e.g. skill, intelligence etc. They are also called as internal goods.

The impersonal goods are generally material goods and not personal goods. For example land furniture, vehicle etc. They are external and lie outside and hence they are also called external goods.

In short, personal goods indicate “what he is” and impersonal goods” What he has”

6) Private Goods and Public Goods:

Private goods refer to individual property e.g. Building land, vehicle etc. which are possessed by an individual.

The public goods like railway, roads, dams etc. are owned by society. They are common to all and owned by society collectively.

7) Necessaries, Comforts and Luxuries:

Goods can be classified as

Necessaries – like food, cloth, shelter, etc.

Comfort- table, electricity and

Luxuries – Air Condition, vehicle, T.V., Gold & Silver, Jewellery etc.

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