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. Income Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
  6. Elasticity

    A measure of a variable's sensitivity to a change in another ...
RELATED FAQS
  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 the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  4. What are the different ways that utility is measured in economics?

    It's difficult to measure a qualitative concept such as utility, but economists try to quantify it in two different ways: ... Read Full Answer >>
  5. What is the difference between adverse selection and moral hazard?

    In economics, moral hazard and adverse selection are two possible consequences of asymmetric information or ineffective information ... Read Full Answer >>
  6. How does adverse selection contribute to market failure?

    Adverse selection is perhaps the most academically cited example of market failure in a laissez-faire economy. The problem ... Read Full Answer >>
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. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  6. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  7. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  8. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  9. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  10. Economics

    Explaining Working Capital Turnover

    Working capital turnover is a ratio that helps show how efficiently a company is generating revenue per dollar of cash available to spend on operations.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center