Normal Goods in Economics

Quality cereals are considered a normal good.
Quality cereals are considered a normal good. (Image: Jupiterimages/ Images)

In a free-market environment, all goods can be purchased at their set price, however, people choose the goods they buy according to their purchasing power. For example, low-income consumers will choose the cheaper shampoo or soft drink over their more expensive — but also better quality — counterparts. However, the same consumers' purchasing habits are expected to change when their income rises, as they start buying better quality goods they can afford. These products or services are the so-called "normal goods."

Definition of Normal Goods

Normal goods are the products or services for which demand grows when consumers' purchasing power rises, and shrinks when purchasing power falls, with the price remaining stable. For example, quality alkaline batteries are a normal good: people prefer them over inferior batteries when their income allows them to spend additional money on them, but their price is set. The term "normal" is used to suggest that these goods are what all consumers would "normally" purchase if their income was enough.

Difference with Inferior Goods

Contrary to normal goods, the demand for inferior goods falls when income rises, and grows when income decreases. Inferior goods include discount products, for which the focus is not on quality of content or packaging, but on their low price. Low-income consumers are attracted by such goods and for this reason, many supermarkets have their own generic brands, competing with the well-known brands on their shelves.

Difference with Superior Goods

Demand for superior goods grows when purchasing power rises, and falls when purchasing power shrinks. In this respect, they can be considered normal goods. However, the attributes of superior goods distinguishing them from normal ones are their scarcity, their exceptionally better quality and the "prestige" they give to consumers. Such products include expensive food like caviar and quality Scottish salmon, designer apparel and sports cars. Another distinct characteristic of superior goods is that demand for them decreases as their price falls.

Income Elasticity of Demand and Goods

Income elasticity of demand refers to the change of consumers' purchasing habits when their income changes. It is the quotient of demand change percentage divided by income change percentage. For normal goods, the income elasticity of demand index is positive: as one value rises (income) the other value follows suit (demand). For inferior goods, this index is negative: when one value rises the other one falls. Superior goods also have positive income elasticity of demand.

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