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Types of Economic Goods Explained

The document defines and provides examples of different types of economic goods: Inferior goods are goods where demand decreases as income rises. An example is generic bread. Normal goods are goods where demand increases with income. Luxury goods see an even greater percentage increase in demand relative to income. Complementary goods are used together, like a TV and DVD player. Substitute goods can replace each other, like Pepsi and Coke. Giffen goods paradoxically see increased demand when prices rise due to the income effect. Veblen goods have demand encouraged by higher prices due to perceptions of quality. Public goods are non-rival and non-excludable like national defense. Merit goods underestimate benefits while

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262 views2 pages

Types of Economic Goods Explained

The document defines and provides examples of different types of economic goods: Inferior goods are goods where demand decreases as income rises. An example is generic bread. Normal goods are goods where demand increases with income. Luxury goods see an even greater percentage increase in demand relative to income. Complementary goods are used together, like a TV and DVD player. Substitute goods can replace each other, like Pepsi and Coke. Giffen goods paradoxically see increased demand when prices rise due to the income effect. Veblen goods have demand encouraged by higher prices due to perceptions of quality. Public goods are non-rival and non-excludable like national defense. Merit goods underestimate benefits while

Uploaded by

Zuhaib Ahmed
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd

Different Types of Goods Inferior, Normal, Luxury

By Tejvan Pettinger on October 20, 2011 in economics A list of different types of economic goods. Income Elasticity of Demand and types of Goods Income elasticity of demand measures the responsiveness of demand to a change in income.

Definition Inferior Good: An inferior good means an increase in income causes a fall in demand. It has a negative YED. An example, of an inferior good is Tesco value bread. When your income rises you buy less Tesco value bread and more high quality, organic bread. Definition Normal Good. This means an increase in income causes an increase in demand. It has a positive YED. Note a normal good can be income elastic or income inelastic. Definition Luxury Good. A luxury good means an increase in income causes a bigger % increase in demand. It means that the YED is greater than one. For example, high Definition TVs would be luxury. When income rises, people spend a higher % of their income on the luxury good. (Note: a luxury good is also a normal good, but a normal good isnt necessarily a luxury good)

Other Types of Goods


Complementary Goods. Goods which are used together, e.g. TV and DVD player. see: Complementary goods Substitute Goods. Goods which are alternatives, e.g. Pepsi and coca-cola. See Substitute goods. Giffen Good. A rare type of good, where an increase in price causes an increase in demand. The reason is that the income effect of a rise in the price causes you to buy more of this cheap good because you cant afford more expensive goods. For example, if the price of wheat rises, a poor peasant may not be able to afford meat any more, so has to buy more wheat. See: Giffen goods Veblen / Snob Good. A good where an increase in price encourages people to buy more of it. This is because they think more expensive goods are better. See: Veblen good

Market Failure

Public Goods goods with characteristics of non-rivalry and non-excludability, e.g. national defense. See: Public goods Merit Goods. Goods which people may underestimate benefits of. Also often has positive externalities, e.g. education. See: Merit goods Demerit Goods. Goods where people may underestimate costs of consuming it. Often has negative externalities, e.g. smoking, drugs. See: Demerit goods Private goods goods which do have rivalry and excludability. The opposite of a public good See: Private goods Free Goods A good with no opportunity cost, e.g. breathing air.

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