Normal Good

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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.

BREAKING DOWN '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.

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RELATED FAQS
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    Demand elasticity is an economic measure of the sensitivity of demand relative to a change in another variable. The quantity ... Read Full Answer >>
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    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 is the utility function and how is it calculated?

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