Final answer:
Services are intangible, inseparable activities that fulfill consumer needs and wants. Dispensable income is the key determinant of service consumption. Services are an essential part of the economy as they drive consumer expenditure and are a growing segment of economic activity.
Step-by-step explanation:
The concept of services in economics can create some confusion due to its intangible nature. Unlike goods, which are tangible items that one can touch and own, services are actions or activities performed by someone to fulfill the needs or wants of another individual.
For example, haircuts, dental check-ups, and banking are all services because they are experiences or benefits that one receives without obtaining a physical good. These actions cannot be separated from their consumption; they occur at the same time they are being consumed.
Disposable income is a key factor that influences the consumption of services. It represents the amount of money individuals have available after taxes, which they can spend on both goods and services. The higher the disposable income, the more likely individuals are to purchase services.
Moreover, services play an essential role in the market as consumer expenditure. When people pay for services, that spending contributes to economic activity, similar to when they purchase tangible goods.
It's important to understand services in the context of economics because they show how consumer needs and preferences drive the economy and how service-based businesses must operate differently from those that sell physical products.
In an economy where services are becoming increasingly prevalent, understanding the unique characteristics of services is essential.