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


46 thoughts on “Different types of goods – Inferior, Normal, Luxury

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

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