Service

Definition

In economics, a service is an intangible economic good that encompasses the provision of skills, work, or expertise by one entity on behalf of another. Unlike commodities, which are tangible and can be stored or resold, services are consumed at the point of delivery and create value through labor, advice, managerial skills, or other forms of expertise.

Types of Services

Services to Trade: These include activities that facilitate commercial transactions such as:
- Banking: Financial services like savings and loans.
- Insurance: Risk management services.
- Transport: Movement of goods and people.
Professional Services: These are specialized services that require significant expertise, including:
- Accountants: Financial auditing and advisory.
- Lawyers: Legal advice and representation.
- Architects: Design and structural planning.
- Business Consultants: Strategic and operational advice.
- Doctors: Medical advice and treatment.
Consumer Services: Services that are directly purchased by individuals for personal use, such as:
- Caterers: Food services for events.
- Cleaners: General cleaning services.
- Mechanics: Vehicle maintenance and repair.
- Plumbers: Maintenance of water systems.

Sectoral Division

Extractive Sector: Industries involved in the extraction of raw materials.
Manufacturing Sector: Industries focused on converting raw materials into finished goods.
Service Sector: The sector encompassing all services, which contributes significantly to national income.

Examples of Services

Banking Services: Personal savings accounts, loans, and online banking.
Legal Services: Contract law advice, litigation, and legal document preparation.
Medical Services: Routine check-ups, surgical procedures, and prescription consultations.
Transport Services: Public transit, freight shipping, and ride-sharing services.
Catering Services: Food and beverage services for events and personal gatherings.

Frequently Asked Questions (FAQs)

What is the primary difference between a service and a commodity?

Answer: A service is an intangible activity performed by one party for another, while a commodity is a tangible item that can be stored, bought, or sold.

Why do services make up a larger proportion of national income?

Answer: Services have become more prevalent due to increased demand for specialized skills, the shift towards knowledge-based economies, and the outsourcing of non-core functions by businesses.

How does the service sector contribute to economic growth?

Answer: The service sector contributes through job creation, innovation, efficiency improvements, and by meeting consumer and business needs, driving overall economic growth.

What are professional services and why are they important?

Answer: Professional services are specialized services provided by individuals with expertise in a particular field. They are crucial as they offer the necessary advice and solutions for legal, financial, medical, and strategic challenges faced by individuals and businesses.

Can a single business offer both commodities and services?

Answer: Yes, many businesses operate a mixed model where they sell physical goods (commodities) and provide complementary services, enhancing customer value.

Commodity: A basic good that is interchangeable with other goods of the same type.
Economic Good: A product or service that can command a price when sold.
Gross Domestic Product (GDP): The total value of all goods and services produced within a nation’s borders.
Sector: A distinct subset of the economy concerned with a specified area of economic activity.

Online References

Suggested Books for Further Studies

“The Service Economy” by Victor R. Fuchs - Analyzes the transitioning economy focusing on service sectors.
“Services Marketing: People, Technology, Strategy” by Christopher Lovelock - A comprehensive guide to the concepts, theories, and cases related to services marketing.
“Service Management: Operations, Strategy, Information Technology” by James A. Fitzsimmons - Discusses the foundational and strategic aspects of service management.
“Services Marketing: Integrating Customer Focus Across the Firm” by Valarie A. Zeithaml - Offers insights into customer-focused strategies in service industries.

Accounting Basics: “Service” Fundamentals Quiz

### Which of the following best defines a service? - [ ] A tangible economic good that can be stored and resold. - [x] An intangible economic good that involves the provision of labor, advice, or expertise. - [ ] A product that is manufactured and distributed to consumers. - [ ] A form of investment in physical infrastructure. > **Explanation:** A service is an intangible economic good that involves the provision of labor, advice, or expertise, distinguishing it from commodities which are tangible and can be stored and resold. ### Which industry does NOT belong to the service sector? - [ ] Banking - [ ] Legal advice - [ ] Catering - [x] Mining > **Explanation:** Mining falls into the extractive sector, which involves the extraction of raw materials. Banking, legal advice, and catering are all part of the service sector. ### Which of the following is considered a professional service? - [ ] Public transportation - [ ] Caterer - [x] Lawyer - [ ] Mechanic > **Explanation:** A lawyer provides professional services that require specialized knowledge and expertise, unlike transportation, catering, or mechanics which are consumer services. ### Consumer services include all of the following EXCEPT: - [ ] Mechanics - [ ] Cleaners - [x] Business consultants - [ ] Plumbers > **Explanation:** Business consultants provide professional services, whereas mechanics, cleaners, and plumbers offer consumer services directly to individuals. ### How do services contribute to national income? - [ ] Through manufacturing processes - [ ] Through extraction of raw materials - [x] By providing intangible value and generating employment - [ ] By being resold as commodities > **Explanation:** Services contribute to national income by providing intangible value, generating employment, and supporting other economic activities. ### What makes services distinct from commodities? - [x] Services are intangible and consumed at the point of delivery. - [ ] Services can be stored and resold. - [ ] Services act as raw materials. - [ ] Services are physical goods. > **Explanation:** Services are distinct from commodities because they are intangible and consumed at the point of delivery, whereas commodities are physical goods that can be stored and resold. ### Which of the following services is least likely to be outsourced? - [x] Medical examination - [ ] IT support - [ ] Human resources consulting - [ ] Customer service > **Explanation:** Medical examinations are typically performed in-person and are less likely to be outsourced compared to services like IT support, HR consulting, or customer service. ### Professional services often require: - [ ] Minimal training - [x] Significant expertise and qualifications - [ ] Basic customer service skills - [ ] Manufacturing knowledge > **Explanation:** Professional services require significant expertise and qualifications, as they often involve specialized advice and skills. ### What type of service would an insurance policy fall under? - [x] Services to trade - [ ] Professional service - [ ] Consumer service - [ ] Extractive service > **Explanation:** An insurance policy is considered a service to trade as it facilitates commercial transactions and provides risk management solutions. ### Why are services important to modern economies? - [ ] They are easily manufactured. - [ ] They are extracted from natural resources. - [ ] They are tangible products. - [x] They represent a significant proportion of GDP and employment. > **Explanation:** Services are important to modern economies because they represent a significant proportion of GDP and employment, driving economic growth and development.

Thank you for exploring the concept of “Service” with us! Services play a crucial role in the modern economy, and gaining a detailed understanding of this term enhances your knowledge in accounting and related fields. Keep refining your expertise!