What are normal goods? (Plus Types and Examples)
By Indeed Editorial Team
Published 11 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Normal goods are goods that have a significant increase in demand when consumers witness an increase in wages. These goods are mostly common household items and necessary products that necessitate purchase, especially in positive economic times. By understanding normal goods, how they function and the typical features that differentiate them from other goods you can better understand and even predict the market you're in. In this article, we define normal goods by highlighting kinds of normal goods, their relationship with consumer behaviour, examples of these goods and the differences and similarities between normal and inferior goods.
What are normal goods?
Normal goods are goods that consumers seem to purchase more when they have an increase in their wages, income or in the money made available to them. When consumers have an increase in purchasing power, there are certain goods that they purchase more of. These goods are sometimes favourites of theirs or items that consumers cannot do without. Just like managing your income when you have little resources, you also buy more items when you have more money. The items you often buy more of in times of plenty are normal goods.
They're ‘normal' because it is naturally expected that you spend more on certain items when you have more money. These items witness a spike in demand when the economy is good and consumers have more money to spend. ‘Abnormal' goods are goods that are not really purchased when consumers have an increase in income. These goods often stay the same in times of plenty and scarcity, but wages and income affect normal goods. The more you earn, the more you spend on normal goods and the less you earn, the less you spend on them.
The relationship between normal goods and consumers' behaviour
There are several factors that determine the demand for different goods, but for normal goods, the major determining factor is a unique pattern in consumers' behaviour. This is what often determines how a consumer spends or purchases a particular item. When consumers have more money to spend, they're able to afford the goods they have been wanting. Concerning normal goods, consumers typically behave the same way.
How to calculate income elasticity of demand
Income elasticity of demand is a tool that economists use to accurately analyse and measure to what degree a product's demand reacts to the income of most consumers and their purchasing power. To calculate the income elasticity of demand, first, find out the difference in the present and previous quantity of demanded products, then divide this by the change in the income. The formula to use for the calculation is:
Income elasticity of demand = (Present quantity of demanded products - former quantity of demanded products) / (Present income - former income)
Examples of normal goods
There are a lot of normal goods. But the definition of ‘normal' varies from country to country or from region to region. A normal good in country A might be an inferior good in country B. The discrepancies in the perception of these goods are usually due to a lot of factors:
In country A, for instance, electric kettles may be inferior goods and boiling rings might be normal goods, but in country B, consumer preference may be for electric kettles, and boiling rings are then inferior goods. This is what it means for normal goods to be inferior in different locations. Exposure and development are important factors that affect a good's perception in specific locations. Here are typical examples of normal goods:
When people receive an increase in income, they're more likely to make food choices based on preference, taste and quality. People often prefer more cost-effective, non-organic foods when trying to save money. In the case of an increased income, they can now afford to choose based on preference and purchase speciality or organic foods.
Electronics typically include items like tablets, phones, laptops and gaming consoles. People are more likely to spend on these items when they have more money. This is because these items are also comfort goods and they provide individuals with convenience and efficiency for completing tasks. When there is an increase in a consumer's income, they're able to not just purchase more of these goods, but also the higher value versions of these products.
The more money consumers have, the more they spend on expensive food and restaurants. In this case of higher income, people can afford the luxury of visiting restaurants and going on dates, lunches and dinners rather than preparing and cleaning up after a meal at home. When people have less money, they tend to spend less on food purchased at restaurants, investing in lower-cost eateries and meals cooked at home.
With more money, comes an increase in the need or want for convenience. When consumers have an increase in their income and purchasing power, they desire more convenience and make use of more ride-hailing services. At this point, saving time may be more important than saving money.
Clothes are a type of normal goods and also inferior goods, depending on the quality degree of the clothes in consideration. When people have more money, they buy more luxury clothing. But at the same time, if they were choosing clothes based solely on function before, such as low-cost or second-hand options, they discontinue the practice as soon as they have more money to spend.
What are the differences and similarities between normal goods and inferior goods?
Normal goods have increased demand as consumers have an increase in purchasing power, but for inferior goods, an increase in purchasing power causes decreased demand. The similarity between normal and inferior goods is present in how normal goods vary according to location, as inferior goods also vary according to location. As time passes, normal goods can become inferior goods and inferior goods can also become normal goods. For example, railway transport, at the time of its inception, was a normal good but has now become an inferior good in some geographic areas.
Related: What is FMCG?
Different types of goods
Consider the types of goods listed below:
Just as the name implies, luxury goods refer to luxurious products and items that are usually not necessities. They're goods you believe you cannot afford at certain times when you have low purchasing power, but you're soon to purchase when you have more money with you. Products such as those of very high quality, updated versions of electronic products or designer clothing are examples of luxury goods.
These goods typically have a higher cost. Consumers cannot afford them without higher purchasing power, and they're common with social groups that maintain high purchasing power. While a normal good isn't necessarily a luxury good, a luxury good is a normal good.
Inferior goods lie in contrast to normal goods. Their demand decreases as consumers have an increase in their purchasing power, income or wages. Inferior goods are not necessarily lower quality, but they can be. They are items you buy to save money, and they may have a lower cost or support a cost-effective lifestyle.
Products in this category can vary by social or regional preference. Of course, food and water are necessities for all people, but the definition of necessity goods is blurry outside of these two items. Electricity, for example, is considered a necessary item for many, but others consider it to be a luxury. Necessity goods may or may not increase with an increase in income.
Comfort goods in many cases are also luxury goods. They aren't necessities, but they provide luxury and comfort. Examples of comfort goods include take-out foods, central heating or air conditioning and clothing selected by occasion or preference.
These are goods that are purchased together. If an individual buys one of them, they also buy the other. A typical example of complementary goods is a bottle of shampoo and a bottle of conditioner. People often buy these two items together as they're always used hand-in-hand. Another example of complementary goods is a streaming device and TV.
These are goods that can replace one another. They're usually in close competition with each other. Examples of substitute goods include the different phones on the market. Depending on which is available or which is preferable, individuals opt for one or the other. They perform similar functions and consumers can easily substitute for one another.
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