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What’s an example of a normal good?

A normal good is a type of good whose demand increases when income increases, and vice versa. In other words, as a consumer’s income rises, so does their demand for normal goods. This is in contrast to inferior goods, where demand falls as income rises.

Definition of Normal Good

More specifically, a normal good exhibits a positive income elasticity of demand. This means that the percentage change in quantity demanded is greater than the percentage change in income. For example, if income rises 10% and demand for a normal good rises 15%, then it has a positive income elasticity of demand.

Normal goods make up the bulk of goods and services produced and consumed in an economy. These are goods that consumers purchase more of as their income rises. Some examples of normal goods include:

  • New cars
  • Restaurant meals
  • Designer clothing
  • Vacation travel
  • Larger homes

As you can see, these are goods that people typically buy more of when they have higher disposable incomes. The demand for normal goods slopes upward – this reflects the positive relationship between income and quantity demanded.

Examples of Normal Goods

Here are some more detailed examples of products that can be classified as normal goods:

New Cars

New cars are a classic example of a normal good. As income rises, consumers tend to upgrade to more expensive, luxury vehicles. Data shows that the income elasticity of demand for new vehicles is positive. Between 2009 and 2019, when real median household income rose 10%, the average price paid for a new car increased 22%.

Restaurant Meals

Meals at full-service restaurants are generally considered a normal good. When money is tight, consumers cut back on dining out. But when incomes rise, many consumers choose to eat at restaurants more frequently. The income elasticity of restaurant meals is estimated to be between 0.9 and 1.3 – indicating they are a normal good.

First-Class Air Travel

First and business class air travel is a normal good. As incomes rise, more consumers choose to upgrade to premium seats. Between 2009 and 2019, U.S. household income increased 15% while revenue passenger miles in business class increased 39%. The demand for first-class travel experiences has grown steadily as high-income households drive spending.

Fitness Club Memberships

Joining a fitness club or gym is considered a normal good. Consumers tend to spend more on health and fitness offerings like gym memberships and personal training when they have higher disposable incomes. The income elasticity of demand for gym memberships falls between 1.1 and 1.4.

Inferior Goods vs. Normal Goods

Inferior goods contrast with normal goods because when income rises, demand for inferior goods falls. Likewise, when income decreases, demand increases. Some examples of inferior goods include:

  • Public transit
  • Discount retailers
  • Generic food brands
  • Used cars

These goods tend to have negative income elasticity of demand. Consumers purchase less public transit, shop less at discount stores, buy fewer generic groceries, and acquire less used cars as their income rises. The demand curves have a negative slope to reflect the inverse relationship between income and quantity demanded.

Key Differences

Normal Good Inferior Good
Quantity demanded increases with income Quantity demanded decreases with income
Positive income elasticity Negative income elasticity
Higher-end goods Lower-end goods
Upward sloping demand curve Downward sloping demand curve

Conclusion

In summary, normal goods see an increase in demand as consumer income rises. They have a positive income elasticity, with the percentage change in quantity greater than the percentage change in income. Normal goods make up a substantial portion of economic consumption and include things like new cars, restaurant meals, nicer homes, and first-class travel. When analyzing the impact of income changes on demand, most goods can be classified as either normal or inferior goods.