Concept of Needs, Wants, Goods and Services
Senior 1 · Entrepreneurship
Concept of Needs, Wants, Goods and Services
Lesson 4 of 4
25 min
Mutoni runs a shop and mobile-money point near the market in Rubavu. She keeps a notebook of what sells, and after a year she notices patterns:
(An illustrative case.) Think about it: For each pattern, what made people buy more or less?
Definition
Consumption: the use of goods and services to satisfy needs and wants. Spending on them is called consumer spending.
Example: a family eating the rice it bought; a passenger using a bus service.
Definition
Consumer: a person or household that buys and uses goods and services.
Example: every customer in Mutoni's shop.
| Factor | How it affects consumption | In Mutoni's shop |
|---|---|---|
| Income | More income, more spending; less income, less spending | Sales jump on salary day |
| Price of the good | A higher price usually means people buy less of it | Sugar sales fell when the price rose |
| Prices of other goods | If a substitute gets cheaper, people switch to it | Some customers switched from sugar to honey |
| Season and weather | Needs change with rain, heat and harvests | Umbrellas in the rains, cold drinks in the dry season |
| Culture, religion and festivals | Celebrations raise spending; beliefs rule some goods out | Rice and cloth before Christmas, Eid and weddings |
| Advertising | Makes people aware of a product and want it | The juice advertised on radio |
| Population | More people nearby, more customers | A new school brought new buyers |
| Tastes and fashion | Popular styles sell; old ones stop selling | Young customers ask for one style of sandal |
| Credit and ways to pay | Mobile money and credit make buying easier | Customers pay by phone without carrying cash |
| Government policy | Taxes raise prices; subsidies lower them | Value added tax (VAT) is included in many prices |
| Expected future prices | If prices are expected to rise, people buy now | A rumour about cooking oil emptied the shelf |
Definition
Advertising: paid messages that tell people about a product and try to persuade them to buy it, on radio, television, posters or social media.
Example: the radio advertisement for the juice.
Warning
Advertising is not information. An advertisement is written by the seller to sell. Before buying because of an advert, check the price, compare with other brands, and ask whether it is a need or a want.
A positive answer is a rise; a negative answer is a fall.
Worked example
Sugar: price and sales (figures from the case)
Change in price:
Change in weekly sales:
A 20% rise in price came with a 15% fall in the amount customers bought.
Worked example
Income and the share spent on food (illustrative figures)
A household earning Frw 200,000 a month spends Frw 90,000 on food. When its income rises to Frw 250,000, it spends Frw 100,000 on food.
Before: After:
The family spends more francs on food but a smaller share of its income. The extra income goes mostly on secondary needs and wants, such as school costs, transport or furniture.
Worked example
How a tax changes a price
Rwanda's standard rate of value added tax (VAT) is 18%. A pair of shoes costs Frw 10,000 before VAT.
The consumer pays Frw 11,800; the Frw 1,800 goes to the government through the seller.
When households consume, their money becomes the income of firms. Firms use it to pay wages, rent and profit to households, who spend it again. The diagram shows this circle.
Definition
Circular flow of income: a model of the economy in which households sell their labour, land and capital to firms for income, and spend that income on the goods and services firms produce, so that money flows round in a circle.
Example: Mutoni pays her assistant's wage; the assistant spends it on food in the market; the market traders buy goods in Mutoni's shop.
Tip
Follow the franc. Money goes one way round the circle and goods and work go the other way. If households suddenly spend less, firms earn less, so they pay less in wages, and households then have even less to spend.
Think Econ, "Circular Flow Diagram In Economics" (about 4 minutes). Watch for the two flows the video draws: money one way, goods and resources the other. Compare it with the diagram above.
Practice
Further reading
Sources and credits
Written by Ganzaa: the Rubavu case, the table, the circular-flow diagram, the worked examples, the activity and the practice items. Prices and sales are illustrative (2026); the 18% VAT rate is Rwanda's standard rate.
