II] Classification of goods on the basis of use.
On the basis of use goods are classified as Consumer goods and producer goods.
Consumer goods are goods of the first order.
Products that are purchased (demanded)for consumption by the consumers/households, are known as Consumer goods. They are also known as final goods.
Consumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf in other words they are the output in the process of production. They are supplied by the producers/business firms
They satisfy wants immediately and directly. Since these goods yield a direct satisfaction to the consumer they have a direct demand.
The demand for consumer goods is utility based ie they are demanded when a consumer feels they have a capacity to satisfy their wants.
Clothing, food, automobiles and jewellery which satisfy human wants through their direct consumption or use.are all examples of consumer goods.
The contribution of final goods to a country’s Gross Domestic Product may be determined through the final goods method, which calculates the market value of final goods produced in the year.
The measurement of consumer goods sales is important in the assessment of gross domestic product and in determining the health of the overall economy. Demand for consumer goods indicates whether consumers are willing to part with cash. Items are only counted as consumer goods once – if they are resold, they will not be included in economic calculations
Definition of consumer goods sector, “A category of stocks and companies that relate to items purchased by individuals rather than by manufacturers and industries.”
This sector includes companies involved with food production, packaged goods, clothing, beverages, automobiles and electronics.
Performance in the consumer goods sector depends heavily on consumer behavior. When the economy grows the sector will see an increased demand for higher-end products. When the economy shrinks there is an increased demand for value products. While some product types, such as food, are necessary, others, such as automobiles, are considered luxury items.
Producers goods are goods of a higher order.
Products that are purchased (demanded) for production by the producer’s/business firms, are known as Producers goods. They are also known as intermediate or capital goods.
Producers good when combined with other producer goods through the manufacturing process, will finally be transformed into directly serviceable/usable goods at some point in future ie they can satisfy human wants indirectly. Since these goods yield an indirect satisfaction to the consumer they have a derived demand.
These goods become a part of the final product or lose their distinct identity in the manufacturing stream, in other words they are the inputs in the process of production.
They are supplied by the households/firms which produce raw material for other firms.
The demand for producers goods is productivity based ie they are demanded when a producer feels they would increase their profits.
Plant, equipments, machinery, raw materials, inventory etc that are used in the process of creating consumer goods, are examples of producer’s goods.
The contribution of intermediate goods to a country’s Gross Domestic Product may be determined through the value added method, which calculates the amount of value added to the final consumer good at each stage of production. The series of values is summed to estimate the total value of the final product.
The measurement of producers goods used is important in the assessment of gross domestic product and in determining the health and growth of the overall economy. Demand for producer’s goods indicates whether the producers are willing to invest in production with a profit motive.
Definition of producer goods sector, “A category of stocks and companies related to the manufacture or distribution of goods”.
The sector is diverse, containing companies that manufacture machinery used to create capital goods, electrical equipment, aerospace and defense, engineering and construction projects.
Performance in the capital goods sector is sensitive to fluctuations in the business cycle. Because it relies heavily on manufacturing, the sector does well when the economy is booming or expanding. As economic conditions worsen, the demand for capital goods drops off, usually lowering the prices of stocks in the sector
This distinction between consumer goods and producers goods is not rigid. It depends on the use to which it is put or who demands it.
For example, demand for a glass of milk in the morning indicates that it a consumer good, but demand for milk in an ice cream factory is derived in the demand for ice cream and therefore indicates that it is a producers’ good.
Sugar is used as a final good when sold in a super market and as an input when it is used to make candy.