Goods and services

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Barbier in Kaxgar.jpg
Pens are physical goods, while barbering is an intangible service.

Goods are items that are usually (but not always) tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Taken together, it is the production, distribution, and consumption of goods and services which underpins all economic activity and trade. According to economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to the consumer or end-user, although businesses also consume goods and services in the course of producing other goods and services (see: Distribution: Channels and intermediaries).

Contents

History

Physiocratic economists categorized production into productive labour and unproductive labour. Adam Smith expanded this thought by arguing that any economic activities directly related on material products (goods) were productive, and those activities which involved non-material production (services) were unproductive. This emphasis on material production was adapted by David Ricardo, Thomas Robert Malthus and John Stuart Mill, and influenced later Marxian economics. Other, mainly Italian, 18th century economists maintained that all desired goods and services were productive. [1]

Service-goods continuum

Service-goods continuum Service-goods continuum.png
Service-goods continuum

The division of consumables into services is a simplification: these are not discrete categories. Most business theorists see a continuum with pure service at one endpoint and pure tangible commodity goods at the other. Most products fall between these two extremes. For example, a restaurant provides a physical good (prepared food), but also provides services in the form of ambience, the setting and clearing of the table, etc. Although some utilities, such as electricity and communications service providers, exclusively provide services, other utilities deliver physical goods, such as water utilities. For public sector contracting purposes, electricity supply is defined among goods rather than services in the European Union, [2] whereas under United States federal procurement regulations it is treated as a service. [3]

Goods are normally structural and can be transferred in an instant while services are delivered over a period of time. Goods can be returned while a service once delivered cannot. [4] Goods are not always tangible and may be virtual e.g. a book may be paper or electronic.

Marketing theory makes use of the service-goods continuum as an important concept [5] which 'enables marketers to see the relative goods/services composition of total products'. [6]

In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing. [7]

In international law

Distinctions are made between goods and services in the context of international trade liberalization. For example, the World Trade Organization's General Agreement on Tariffs and Trade (GATT) covers international trade in goods [8] and the General Agreement on Trade in Services (GATS) covers the services sector. [9]

See also

Related Research Articles

Free-trade area region encompassing a trade bloc whose member countries have signed a free-trade agreement

A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. If natural persons are also free to move between the countries, in addition to a free-trade agreement, it would also be considered an open border. It can be considered the second stage of economic integration.

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."

World Trade Organization Intergovernmental trade organization

The World Trade Organization (WTO) is an intergovernmental organization that is concerned with the regulation of international trade between nations. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest international economic organization in the world.

National treatment is a principle in international law. Utilized in many treaty regimes involving trade and intellectual property, it requires equal treatment of foreigners and locals. Under national treatment, a state that grants particular rights, benefits or privileges to its own citizens must also grant those advantages to the citizens of other states while they are in that country. In the context of international agreements, a state must provide equal treatment to citizens of the other states participating in the agreement. Imported and locally produced goods should be treated equally — at least after the foreign goods have entered the market.

Service (economics) Transaction involving no transferal of physical goods

In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those that society as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature.

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) which entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties". The Round led to the creation of the World Trade Organization, with GATT remaining as an integral part of the WTO agreements. The broad mandate of the Round had been to extend GATT trade rules to areas previously exempted as too difficult to liberalize and increasingly important new areas previously not included. The Round came into effect in 1995 with deadlines ending in 2000 under the administrative direction of the newly created World Trade Organization (WTO).

Goods Tangible or intangible thing that satisfies human wants and can be transferred

In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not transferable.

Non-tariff barriers to trade Type of trade barriers

Non-tariff barriers to trade (NTBs) or sometimes called "Non-Tariff Measures (NTMs)" are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.

International trade law

International trade law includes the appropriate rules and customs for handling trade between countries. However, it is also used in legal writings as trade between private sectors, which is not right. This branch of law is now an independent field of study as most governments have become part of the world trade, as members of the World Trade Organization (WTO). Since the transaction between private sectors of different countries is an important part of the WTO activities, this latter branch of law is now a very important part of the academic works and is under study in many universities across the world.

Circular flow of income kelle_morgan_hilton_son_Daughter

The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction. The circular flow analysis is the basis of national accounts and hence of macroeconomics.

Productive and unproductive labour are concepts that were used in classical political economy mainly in the 18th and 19th centuries, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis. The concepts strongly influenced the construction of national accounts in the Soviet Union and other Soviet-type societies.

A free trade agreement (FTA) or treaty is a multinational agreement according to international law to form a free-trade area between the cooperating states. FTAs, a form of trade pacts, determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers, thus encouraging international trade. Such agreements usually "center on a chapter providing for preferential tariff treatment", but they also often "include clauses on trade facilitation and rule-making in areas such as investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues".

Trade and Investment Framework Agreement

A Trade and Investment Framework Agreement (TIFA) is a trade pact that establishes a framework for expanding trade and resolving outstanding disputes between countries.

Market access

Market access describes the possibility of an enterprise or a country to sell their goods and services across borders and enter a foreign market. According to the World Trade Organization (WTO), "market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets." Gaining market access is an indispensable step towards deepening trade relations. However, market access is not synonymous with free trade because the possibility to enter a foreign market is in most cases conditioned by certain requirements, whereas free trade implies a perfect state in which goods and services can be circulated across borders without such barriers. Indeed, tackling market access restrictions proves to be a more achievable goal for trade negotiations as compared to free trade.

The Agreement on Technical Barriers to Trade, commonly referred to as the TBT Agreement, is an international treaty administered by the World Trade Organization. It was last renegotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, with its present form entering into force with the establishment of the WTO at the beginning of 1995, binding on all WTO members.

Criticism of the World Trade Organization

Since its creation in 1995, the World Trade Organization (WTO) has done important work to maintain and develop international trade. As one of the largest international economic organizations, it holds tremendous sway over trading rules and agreements, and thus has the ability to affect a country's development profoundly. WTO's policies aims balance tariffs and other forms of protection with a liberalization policy for open, fair and undistorted economic competition" and to “ensure that trade flows as smoothly, predictably and freely as possible". Indeed, the WTO claims that its actions “cut[s] living costs and rises standards, stimulate[s] economic growth and development, help[s] countries develop, [and] give the weak a stronger voice.” Statistically speaking, it is clear that these claims are substantiated; global trade has consistently grown between one and six percent per annum over the past decade, and US$38.8 billion were allocated for Aid for Trade in 2016 alone.

A tariff-rate quota (TRQ) is a two-tiered tariff regime that combines two conventional policy instruments to regulate imports. In its essence, a TRQ regime allows a lower tariff rate on imports of a given product within a specified quantity and requires a higher tariff rate on imports exceeding that quantity. For example, a country might allow the importation of 5000 tractors at a tariff rate of 10%, and any tractor imported above this quantity will be subject to a tariff rate of 30%.

Business services are a recognisable subset of economic services, and share their characteristics. The essential difference is that businesses are concerned about the building of service systems in order to deliver value to their customers and to act in the roles of service provider and service consumer.

Afghanistan received membership to the World Trade Organization (WTO) at the 10th WTO Ministerial Conference in Nairobi, Kenya, December 17, 2015. Afghanistan is 164th in the world and 36th among the less-developed countries that have received WTO membership.

References

  1. Shubik, Martin (23 June 2014). Proceedings of the Conference Accounting and Economics: In Honour of the 500th Anniversary of the Publication of Luca Pacioli's Summa de Arithmetica, Geometria, Proportioni et Propotionalita, Siena, 18-19 November 1992. Taylor & Francis. pp. 236–237. ISBN   978-1-135-60837-8.
  2. UK Legislation. "The Public Contracts Regulations 2006". Regulation 2(1) s.v. "goods". Retrieved 25 June 2015
  3. Federal Acquisition Regulation, Subpart 41.2 — Acquiring Utility Services, accessed 12 May 2018
  4. "Difference Between Goods and Services: Visual Guide". Inevitable Steps. 3 March 2016. Retrieved 3 March 2016.
  5. Indiaclass, "Goods Service Continuum". Accessed 25 June 2015. Archived 25 April 2015 at the Wayback Machine
  6. Bachelors of Management Students Portal (BMS.co.in). "Explain the Goods-Service Continuum". Accessed 25 June 2015
  7. Mattsson, Katriina (2009). "Customer satisfaction in the retail market" (PDF). Theseus. pp. 15–16. Retrieved 18 November 2015.
  8. WTO, GATT and the Goods Council accessed 17 November 2015
  9. WTO, Services trade, accessed 17 November 2015

Further reading