Normal Good


DEFINITION of 'Normal Good'

An economic term used to describe the quantity demanded for a particular good or service as a result of a change in the given level of income. A normal good is one that experiences an increase in demand as the real income of an individual or economy increases.

Another way to define a normal good is by calculating its income elasticity of demand. If this coefficient is positive and lower than 1, the good is considered to be a normal good.


In most circumstances, as the income of an economy increases, there is an increase in the demand for goods and services. One example might be luxury cars; as the income level increases, more people buy or demand these cars.

However, when income rises, demand for some goods and services may be negatively affected. For example, as the income level increases, fewer people might use the public transportation system. In this case, the bus or train would be considered an inferior good or service because its demand has gone down.

  1. Giffen Good

    A good for which demand increases as the price increases, and ...
  2. Intermediate Good

    An intermediate good is a good or service that is used in the ...
  3. Convenience Good

    A consumer item that is widely-available, purchased frequently ...
  4. Advertising Elasticity Of Demand ...

    A measure of a market's sensitivity to increases or decreases ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Elasticity

    A measure of a variable's sensitivity to a change in another ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Insurance

    The Minimum Wage: Does It Matter?

    Despite paying one of the highest minimum wages in the world, the minimum wage is a perpetual hot potato among politicians in the United States.
  4. Taxes

    Beeronomics: Factors Affecting Your Pint

    Beer is a complex beverage shaped by supply and demand, production and distribution, with regulation thrown in for that extra kick.
  5. Investing Basics

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  6. Economics

    What is Deadweight Loss?

    Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  7. Active Trading Fundamentals

    Why Rational Ignorance About Your Investments Might Really Be OK

    It's impossible to know everything about the markets. Find out how ignorance affects your investments.
  8. Professionals

    Tim Cook Leads Apple Into A Record-Breaking 2015

    Understand the differences between Tim Cook and Steve Jobs. Learn if the perceived differences makes Cook a good or bad leader and CEO.
  9. Economics

    How Globalization Affects Developed Countries

    Globalization is the process of expanding business operations on a worldwide level. It’s easier than ever for companies to compete on the global market.
  10. Economics

    Explaining the Coase Theorem

    The Coase theorem states when there are competitive markets and no transaction costs, bargaining will lead to a mutually beneficial outcome.
  1. What's the difference between the income effect and the substitution effect?

    The economics concepts of income effect and substitution effect express changes in the market and how these changes impact ... Read Full Answer >>
  2. What are some examples of demand elasticity other than price elasticity of demand?

    Demand elasticity is an economic measure of the sensitivity of demand relative to a change in another variable. The quantity ... Read Full Answer >>
  3. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  4. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  5. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  6. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center