Types of Goods and the Four Main Economic Systems

So far we have been focusing on microeconomics, or the part of economics concerned with individuals

and their decisions.

For the next significant portion of the series, we will be looking at macroeconomics, or the

study of the economy as a whole.

We will find that it’s still about choices and economic behavior, but instead of looking

at how economics affects individual decisions, we will be looking at how economies affect

entire countries.

Any study of macroeconomics often begins by looking at economic systems.

An economic system is a way that resources get around in a society.

Economic systems regulate the factors of production that we’ve been discussing, or land, labor,

physical capital, and human capital.

There are three questions that can serve as a guide for which economic system to choose

when a society decides to produce things.

These are generally as follows.

First, what should we produce?

Second, how should we produce it?

And third, for whom should we produce it?

To answer the first question, we know that all people need food and shelter, so that

has to be produced.

However, things get more complicated when we attempt to figure out how many resources

we should devote to national defense, education, or health care.

To answer question two, there are so many ways to produce goods and services, and all

require land, labor, and capital, so this requires many trade-offs.

For question three, we know that all people get food and shelter, but how much income

should people get for supplying the factors of production, and who owns the factors of

production?

The answers a society lands on for these questions regarding what should get produced, how it

should get produced, and for whom it should be produced tell us a great deal about that

society’s values.

In order to figure out what these values are, and help societies determine the best economic

system for them, it helps to know the four different types of goods and services.

Generally they are presented in a table like this.

Let’s define some terms.

Rival goods are those for which one individual’s consumption of the good prevents simultaneous

consumption of the exact same good by other consumers.

Food is an obvious example.

If you buy some food and eat it, nobody else can eat that food.

Non-rival goods are just the opposite.

Consumption does not limit the ability of others to consume it.