Normal Good

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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 Basics
    Economics

    Economics Basics

  2. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  3. The Minimum Wage: Does It Matter?
    Insurance

    The Minimum Wage: Does It Matter?

  4. Beeronomics: Factors Affecting Your ...
    Taxes

    Beeronomics: Factors Affecting Your ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center