Goods are items that are tangible, such as pens, salt, shoes, hats and folders and Services are activities provided by other people, such as doctors, lawn care workers, dentists, barbers, waiters, or online servers. 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.
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.
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 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 in the European Union, electricity supply is actually defined as goods rather than services.
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. Goods are not always tangible and may be virtual e.g. a book may be paper or electronic.
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.
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 and the General Agreement on Trade in Services (GATS) covers the services sector.
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