Normal goods are those goods and services that have a positive correlation with an increase in a consumer's income. In other words, an increase in a consumer's income leads to an increase in the demand for normal goods. This is because the consumer is able to afford more of these goods and services as their income rises. From a management perspective, it’s important to be aware of which items are considered normal goods, as this can help to inform pricing and marketing strategies. Normal goods can be differentiated from inferior goods, which are goods wherein an increase in income leads to a decrease in demand.
Example of normal good
Examples of normal goods include:
- Luxury items such as cars, jewelry, and designer clothing
- Electronics such as laptops, televisions, and smartphones
- Home appliances such as washers, dryers, and dishwashers
- Furniture such as couches, chairs, and tables
- Home improvement items such as paint, tools, and fixtures
- Recreational items such as sports equipment and vacation packages
- Entertainment items such as movies, concerts, and video games
- Groceries such as fresh produce, meats, and dairy items
- Dining out at restaurants and fast food establishments.
Types of normal good
Normal goods come in a variety of forms. Some of the more common types of normal goods include:
- Luxury items such as jewelry, cars, and designer clothing, which tend to become more in demand as income rises.
- Services such as spa treatments, travel, and restaurants, which consumers may be able to afford more of as their income increases.
- Electronics such as TVs and computers, which may become more attractive options to consumers with increased income.
- Education-related goods such as books, tuition, and supplies, which may become more accessible to those with a higher income.
- Grocery items such as organic produce, prepared meals, and higher-end cuts of meat, which may become more attractive to consumers with a higher income.
- Home improvement goods such as furniture, appliances, and home décor, which may be more desirable to those with more disposable income.
- Health and beauty products such as makeup, supplements, and gym memberships, which may become more popular with increased income.
Limitations of normal good
Normal goods have several limitations that must be considered when making pricing and marketing decisions. These include:
- The assumption that an increase in income will lead to an increase in demand for the good or service. While this may be true in some cases, there are many circumstances where this isn’t necessarily the case. For example, if the good or service is already priced too high relative to the consumer’s budget, then an increase in income may not lead to an increase in demand.
- Normal goods may also be subject to diminishing returns, meaning that as demand increases, the marginal benefit of each additional purchase may decrease. This can lead to a situation where the consumer is not willing to pay the price for the good or service, even if their income has increased.
- Lastly, normal goods may be subject to competition from inferior goods, meaning that a consumer may opt for the cheaper alternative even if their income has increased. This can lead to a decrease in demand for the normal good, despite the increase in income.
In addition to the definition of normal goods, there are several other approaches related to them, such as:
- Price Elasticity of Demand: This is a measure of how the demand for a good changes with price. Normal goods tend to have a price elasticity of demand greater than one, meaning that a change in price will lead to a larger change in demand than would be expected for an average product.
- Substitution Effect: This refers to how a change in price of one good affects the demand for another good. For normal goods, an increase in price will cause consumers to substitute away from the product and towards other goods.
- Income Elasticity of Demand: This is a measure of how the demand for a good changes with income. Normal goods tend to have an income elasticity of demand greater than one, meaning that an increase in income will lead to a larger increase in demand than would be expected for an average product.
In conclusion, normal goods are those goods and services that have a positive correlation with an increase in a consumer's income. Other approaches related to normal goods include price elasticity of demand, substitution effect, and income elasticity of demand. These approaches can help to inform pricing and marketing strategies, as they indicate how demand for certain goods may change in response to changes in price or income.
- Tirole, J. (2017). Economics for the common good. In Economics for the Common Good. Princeton University Press.
- Etzioni, A. (2014). The common good. John Wiley & Sons.