Different Types of Goods – Inferior, Normal, Luxury

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.

  • 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.
  • 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.
  • 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 TV’s 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 isn’t 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 can’t 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 defence. 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. See: Free good

Related

46 Responses to Different Types of Goods – Inferior, Normal, Luxury

  1. Gerald Lawrence Namakhwa January 28, 2009 at 7:56 am #

    What are the definitions for Giffen,Bads and Complement Goods?

  2. Rodney Zinyengete July 15, 2009 at 2:19 pm #

    what are the effects elasticity on consumer goods and capital gods giving examples of the consumer and the capital goods?

  3. ZAIN August 28, 2009 at 5:00 pm #

    where is others types

  4. Shamsiah September 30, 2009 at 11:33 pm #

    Speculative demand – potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit
    Giffen Goods – special type of inferior good may exist, which disobeys the “law of demand”. When the price of a Giffen Good decreases, the demand for that good decreases. This would have to be a good that is such a large proportion of a person or market’s consumption that the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope upward, indicating positive elasticity.

    Complementary goods – are said to be in joint demand e.g. fish and chips, DVD players and DVDs, iron ore and steel. People generally purchase both goods together therefore a rise in the price of a complement to Good X should cause a fall in the demand for X and therefore good Y- A change in the demand for these goods will directly affect the demand for their complementary goods.

    The extent to which a change in the price of one good leads to a change in the demand for a complement is determined by the cross-price elasticity of demand.

  5. Majara E November 2, 2009 at 5:52 pm #

    most people like me for instance…tend to find a problem on how other countries have a good economic growth while others stragle alot. i believed that the course of that is when a country exports more than it imports. Argumentatively, is well known fact that all the resources are scarce but what accually is scarce about them regardless of the nature because is never enough for humans. is it possible for all the countries to have the stable economic growth to monotor and innovate a common currency hance poverty reduced???????

  6. prathiksha shetty December 21, 2009 at 6:26 am #

    how to study economics for exams it is very diffucult for me to understand the topics what my teachers teach becaue she teaches too fast and finishes one topic in one class and will not explain the important points at all can you please help me out to study for the exam point of view sir please.

  7. funmilols December 23, 2009 at 7:16 am #

    the roles played by money in an economy?

  8. funmilols December 23, 2009 at 7:23 am #

    what are the roles played by money in an economy?

  9. Ishara Madhurngi January 5, 2010 at 9:09 am #

    Explain different type of goods and its behavior according to the change of elasticity..

  10. nelha baldis February 9, 2010 at 10:40 am #

    Manufacturing
    Manufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing other, more complex products, such as household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users – the “consumers”.
    Manufacturing takes turns under all types of economic systems. In a free market economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation.
    Modern manufacturing includes all intermediate processes required for the production and integration of a product’s components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead.
    The manufacturing sector is closely connected with engineering and industrial design. Examples of major manufacturers in the United States include General Motors Corporation, Ford Motor Company, Chrysler, Boeing, Gates Corporation and Pfizer. Examples in Europe include Airbus, Daimler, BMW, Fiat, and Michelin Tyre.
    Types of Goods
    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 TV’s would be luxury. When income rises, people spend a higher % of their income on the luxury good.

  11. tanisha February 11, 2010 at 11:20 pm #

    i really wanted know more about private,public,free and merit goods not luxury,normal and inferior goods.that makes absolutley no sence at all. well by the thnx for ur answer.

  12. L_14 February 24, 2010 at 12:38 pm #

    Is there any difference in this question ” Enumerate and define types of goods sold in a store.” ?

  13. P. Kaliammah April 9, 2010 at 9:03 am #

    Me too having same problem. In 5 seminars we have to completed one book with assignments. Thats crazy. Economics…uwakssss…..yaksss….I dont know wat is DD, SS, Cost structures……devada……

  14. nongoma sivatho April 23, 2010 at 12:15 pm #

    more details about these types of goods

  15. nongoma sivatho April 23, 2010 at 12:21 pm #

    more details about these types of goods and their examples

  16. Saddam Exavery kyando May 9, 2010 at 10:52 am #

    More details as well as examples on NORMAL GOODS

  17. Adebo olusegun May 11, 2010 at 2:19 am #

    Pls can i have a text book to read from your site

  18. rieya July 12, 2010 at 4:59 am #

    i want some more about economic goods,intermediate goods,and finished goods…..thank you.

    • Tumisang January 20, 2013 at 8:03 pm #

      Economic goods are goods that u pay before u get them like bread,clothes.

  19. sheng July 16, 2010 at 11:26 am #

    what are the types of goods?

  20. missed call November 16, 2010 at 4:05 pm #

    1.I want to know the detailed types of consumer goods with examples and explanations.
    2.What would a straight line PPF indicate

    • chanyrees March 26, 2013 at 9:19 pm #

      Opportunity costs are constant, Eg. Each time you have to give up 1 eggs to buy 2 tomatoes. The opportunity cost for 2 tomatoes is 1 egg (forgone cost). The same goes vice versa on the same curve…You have to give up 2 tomatoes for 1 additional egg. The opportunity cost for 1 eggs are 2 tomatoes (forgone cost). Check out what the opportunity costs says about the prices of goods (in terms of other goods).

    • chanyrees March 26, 2013 at 9:21 pm #

      that was the answer to question 2.

  21. airinewj November 18, 2010 at 12:34 pm #

    ,,i need more information about economics goods and examples of types of goods,,,

  22. danieljoeselby January 21, 2011 at 9:28 pm #

    1.i need some examples of luxurious goods and normal goods
    2.the differences between luxurious goods and normal goods.[5]

    • Niquel nispy June 5, 2013 at 3:13 pm #

      A normal good has a positive incom elasticity that is less than one..whereas a luxirious good has a positive yed..that is greater than one..because normal goods are also basic neccesities..so there is no need for demand to increase substantially because we buy them everyday..but luxurious good ..are d opposite

  23. ahmady March 2, 2011 at 12:54 pm #

    i need to know the different type of Goods in economy by description how it is divided ? from which perspective

  24. ahmady March 2, 2011 at 12:55 pm #

    the categories of Good

  25. bace May 12, 2011 at 7:31 pm #

    can some1 help me on hw to tackle Economics questions lyk the writing skills,tips and etc coz i find t hard sometimes?

  26. Wasi Nyale August 19, 2011 at 5:32 pm #

    That was a good explanation on the types of goods wid nice Egs.

    • Anonymous November 11, 2011 at 1:36 am #

      I agree with Wasi. Thanks for the help.. but what are complementary and sustitute goods?

  27. diamondlyrgirl November 20, 2011 at 11:28 am #

    @Anonymous: Complementary goods are goods that go together – for example, coffee and sugar, if the demand for coffee increases, the demand for sugar will increase as well. Because some people consume them together.
    As for substitute goods, these are the products that compete each other’s demand. Like Coke and Pepsi, if the demand for Coke(the drink not other Coke…) increases which might be caused by a decrease in the price of Coke or an advertisement or any other causes, the demand for Pepsi decreases because people don’t consume two sodas together.

    • caroline January 16, 2012 at 7:45 am #

      what about supplementary goods?? what do you mean by this??can you please answer it and give some examples…thank you

  28. AHMED December 9, 2011 at 7:28 pm #

    Thanks diamondlyrgirl very helpfull and clear explanation

    • Aminu March 6, 2012 at 6:50 pm #

      yes this was really nice explained …

  29. Aminul March 6, 2012 at 6:52 pm #

    what is different goods?

  30. lid竏na hled�eho January 25, 2013 at 3:54 pm #

    Skvělá práce, jen tak dál!!!

  31. vinent March 7, 2013 at 4:03 pm #

    can i know how about shampoo? i having a assignment & i wanted to find out shampoo belongs to what group?

    • kunal April 9, 2013 at 12:47 pm #

      economic good
      consumer good
      non-durable(perishable) goods
      final good

  32. desigirl March 30, 2013 at 5:42 pm #

    name of two complementary goods find in a high five shops?

  33. kraish June 9, 2013 at 9:47 am #

    Tell me more about price theory

  34. Chicks July 8, 2013 at 11:38 am #

    thank you so much

Trackbacks/Pingbacks

  1. Private, Public and Free Goods Defined | Economics Blog - February 13, 2010

    […] See: Different types of Goods […]

  2. Quora - November 1, 2012

    What should everyone know about economics?…

    Economics did not acquire its nickname “The Dismal Science” without just cause. Having earned my entire Bachelors of Science Degree in Economics by attending evening classes while holding down a full time job and raising a family, I would be remiss f…

  3. Examples of Elasticity - Economics Blog - March 4, 2013

    […] Different types of goods  – normal, luxury and inferior […]

  4. Economics of the Pound shop | Economics Help - February 27, 2014

    […] recovers, and real incomes begin to rise. Pound shops may lose out as people turn away from ‘inferior goods‘ and choose more expensive goods – and a more attractive shopping […]