Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.
Definition of Normal Goods
What happens when you get a pay raise or a little extra money in your pocket? You may go out and celebrate your new wealth. Once the celebration is over though, what happens to your spending habits? For most people, their spending increases as income increases. And they usually end up buying normal goods.
Normal goods are any items for which demand increases when income increases. In general, Nike or Adidas shoes would be a normal good. As you make more money, you are likely to move from off-brand shoes to nicer quality ones. To summarize, a good is normal when you consume or demand more of it because your income has increased.
Normal goods are often studied in contrast to inferior goods. An inferior good works just the opposite of a normal good. As your income rises, you actually seek out fewer inferior goods. Inferior goods do not necessarily mean they are inferior in quality to normal goods; it simply means people tend to buy more of them when their income is lower and less when their income is higher.
For example, when your income was lower, you bought Save Well ketchup because the brand was cheap and got the job done. When you got a $5,000 pay raise at work, the next time you went to the grocery store, you decided to buy brand name ketchup. The brand name ketchup is the normal good; Save Well ketchup is the inferior good. If you lost your job a month later and your income dropped, your demand for inferior goods would go back up again. So, the likelihood of buying that Save Well ketchup would increase.
It is important to stress that normal goods are not necessarily better in quality than inferior goods. There is no 'better' or 'worse' when discussing normal versus inferior goods. It is simply a matter of consumer preference and behavior. It can often be financially wise to purchase inferior goods; other times, it can be preferable to purchase normal goods.
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Examples of Normal Goods
Organic Food - Almost anything organic at the grocery store costs more. A lot of people certainly want to eat healthy, but often don't feel they should spend the extra money for the organic label. As income rises though, people are more likely to consume and demand organic products.
Coffee - When it comes to coffee, there are always exceptions based on people's unique tastes. In general though, as people's income increases, their demand for higher-quality coffees and more expensive, blended drinks increases. The inferior good, on the other hand, might be the generic, store-bought coffee you make at home when money is tight.
Electronics - That first big purchase after an increase in income often involves a trip to a major electronics store for a laptop, tablet, smartphone, or new gaming system. While this category is considered a normal good in general, it is important to note that it can have some inferior goods within it. For example, when comparing televisions, higher-priced HD flat screens can be labeled a normal good, while a smaller TV set made by a less-known TV manufacturing company would be an inferior good.
Clothes - Clothes are a normal good. As income rises, people buy more clothes. Just like the electronics example, however, you can have inferior and normal goods within the clothes category. When income decreases, you may shop at retail outlets and consignment stores, which offer more inferior good options. When your income increases, you may venture to shop for brand clothing at luxury or designer clothing stores; these purchases would be normal goods.
Normal goods are any items for which demand increases when income increases. Whole wheat, organic pasta noodles are an example of a normal good. As income increases, the demand for these noodles increases. These are often contrasted with inferior goods. Inferior goods are goods in which demand increases when income decreases, such as canned soups and vegetables. People eat more of them when income is low and less of them as income increases.
Characteristics of Normal Goods
- Demand increases as income increases
- Opposite to inferior goods
- Not necessarily better quality than inferior goods
- Examples include electronics, clothes, organic food
Once you've finished this lesson, you should be able to:
- Explain what a normal good is and give an example
- Recall the difference between a normal good and an inferior good
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Normal Good in Economics: Definition & Examples
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