Good

Action is realized by means to achieve certain ends. Means are necessarily always limited, i.e., scarce with regard to the services for which man wants to use them. The means to satisfy man’s wants are called goods.

(A good should not to be confused with the adjective "good", as used in a moral or ethical sense.)

Consumer and producer goods

Goods may be classified in either of two categories: (a) they can immediately and directly satisfy human wants, or (b) they may be transformed into directly serviceable goods only at some point in the future - i.e., they can satisfy human wants indirectly. The former are called consumption goods or consumers’ goods or goods of the first order. The latter are called producers’ goods or factors of production or goods of a higher order.

A producers' good may be, by the cooperation of complementary producers' goods, transformed into a product. This product may be a consumers' good; it may be a producers' good which when combined with other producers' goods will finally bring about a consumers' good.

Capital Goods

Main article: Capital

Capital goods are producer goods, that were produced by previous stages of production, but do not directly satisfy consumer's needs; they are used in production to eventually produce consumer goods.

Free Goods

Economists often differentiated between free goods and economic goods. They called free goods those things which, being available in superfluous abundance, do not need to be economized. But such goods are not the object of any action. They are general conditions of human welfare; they are parts of the natural environment in which man lives and acts.

Only the economic goods are the substratum of action. They alone are dealt with in economics.

Public Goods

Public goods are reported to have two distinct aspects: "nonexcludability" means that it is hard to exclude people of consumption of a good (the "free rider problem"); everyone will try to "free ride" by allowing others to pay for it and as a result the good will be unproduced, even if there is a strong demand for it. The second characteristic (considered by some less important) is "nonrivalrous consumption", when the good can be consumed without diminishing anyone else's enjoyment of it or increasing its cost. Because these goods will not be produced in a sufficient amount, or at all, they should be produced by the government.

There are numerous examples of public goods of varying acceptance, possibly the most widespread is national defense. To the extent one person in a geographic area is defended from foreign attack or invasion, other people in that same area are likely defended also. This makes it hard to charge people for defense, which means that defense faces the classic free-rider problem. Indeed, almost all economists are convinced that the only way to provide a sufficient level of defense is to have government do it and fund defense with taxes.

There are several arguments against the public goods theory:

• there is no way of knowing what is the "optimal" amount of the good produced
• many other goods can be to some degree considered public with the imprecise definition
• the presence of the state changes the incentive structure. Companies may declare their product for a public good to receive taxpayer funding.
• many of the 'public goods' are successfully produced in the private sector
• the theory does not at all prove that the government should produce these goods
• many of the goods government actually does produce do not correspond to the economist's definition of public goods, so the theory poorly explains the government's actual role in the economy

See also:

• For and against public goods
• A Theory of the Theory of Public Goods, Randall G. Holcombe.
• Fallacies of the Public Goods Theory and the Production of Security by Hans-Hermann Hoppe
• the Wikipedia page on public good theory
• the Econlib page on the same

Services

Goods are often divided into goods in the narrower sense - physical goods - and services, that are in turn intangible. In practice, the distinction is not so clear and many, if not most goods fall somewhere between the two.