Types of Goods#

type-of-goods-graph — Diagram depicting the hypothetical graphs for the different types of goods.#

Normal Goods#

Normal Goods are goods which experience increase in demand when the income of consumers increase. Normal goods have a positive income elasticity of demand. Note that normal goods can be either income elastic or inelastic. An example of a normal good is clothing, as there is a positive correlation between the amount of clothing a person owns versus their income.

Necessities#

Necessities are a subset of normal goods. They are goods which are necessary for us to survive, such as fresh water. Necessities are income inelastic, as the amount of necessities that a person requires does not fluctuate greatly based on income level.

Luxury Goods#

Contrary to what many people think, luxury goods are also a subset of normal goods. Luxury goods are goods that are typically used as symbols of wealth and social status. They have an income elasticity of demand greater than one, meaning that they are income inelastic. An example of a luxury good is designer handbags.

Inferior Goods#

Inferior goods are typically low-cost, low quality goods. This means that when consumer income increases, they will search for higher quality alternatives. In other words, as consumer income increases, the demand for inferior goods decrease. Inferior goods have a negative income elasticity of demand. An example of inferior goods would be no-name brand products.