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A definition of a normal and an inferior good.
Member rating: No Rating | Words: | Submitted: Fri Mar 31 2006
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ESSAY 1: CATHERINE ROBINS 03008113 ----------------------------- ALEXANDROS ZANGELIDIS MONDAY 12 - 1 pm (i) A normal good is a commodity for which an increase in income increases consumption, ceteris parabus1. Conversely, a decrease in income decreases consumption. As their name suggests, most goods (and services) - such as televisions, houses and restaurant meals - are normal goods. An inferior good is one for which an increase in income decreases consumption, ceteris parabus2, and vice versa. Inferior goods are generally cheaper poorer quality substitutes for some other good, such as supermarket own brands. With higher income a consumer can afford to switch from the cheaper but poorer quality product to a more expensive but preferred alternative. As a result, less of the inferior product is demanded at higher levels of income. A way of distinguishing between normal and inferior goods is to look at income elasticity of demand. This is a measure of the responsiveness of demand for a...
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