# Normal Goods: Definition, Demand, and Examples

> **Definition**
>
> Normal goods are products whose demand and price increases and decreases are directly tied to rises and falls in consumer income.

## What Are Normal Goods?

Normal goods are consumer products that experience an increase in demand and prices when consumer income rises, and a decrease in prices and demand when it falls. Food, drinks, clothing, household appliances, and electronics are all examples of normal goods.

### Key Takeaways

*   When consumer income increases, demand and prices for normal goods increase.
*   Demand and prices for normal goods fall when consumer income decreases.
*   Examples of normal goods include food, clothing, and household appliances.
*   Normal goods have a positive income elasticity of demand that, when calculated, is generally a value of more than zero but less than one.
*   Income elasticity of demand is calculated by economists to determine whether a good is a normal, inferior, or luxury item.

![Normal Goods](https://www.investopedia.com/thmb/sDqbkguaQVbn9794pj7m-jUrUv4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/normal-good.asp-Final-55c5c06f36d64611bf08aea23d50dc0c.jpg)

*— Investopedia / Yurle Villegas*

## Understanding Normal Goods

A normal good, or necessary good, doesn't refer to the quality of the good but rather, the level of demand for the good and its relationship to the increases or decreases of a consumer's income level.

Demand for normal goods is determined by patterns of consumer behavior. As income levels rise, consumers can often afford goods that were not previously available to them. Examples of normal goods include:

*   Food
*   Clothing
*   Entertainment
*   Transportation
*   Electronics
*   Home Appliances

## Income Elasticity of Demand

Normal goods have a positive income elasticity of demand, where a change in demand and a change in income move in the same direction.

[Income elasticity of demand](https://www.investopedia.com/terms/i/incomeelasticityofdemand.asp) measures the magnitude with which the quantity demanded changes in response to a change in income. It is used to understand changes in consumption patterns that result from changes in purchasing power.

$\begin{aligned}\text{Income elasticity}=\frac{\%\text{change in quantity purchased}}{\%\text{change in income}}\end{aligned}$  

A normal good has an income elasticity of demand that is positive, but less than one. 

If the demand for blueberries increases by 11% when income increases by 33%, then blueberries have an income elasticity of demand of 0.33, or (11/33). Blueberries qualify as a normal good.

Economists use the income elasticity of demand to determine whether a good is a necessity or a luxury item. Companies also analyze the income elasticity of demand for their products and services to help forecast sales in times of economic expansions resulting in rising incomes, or during economic downturns and declining consumer incomes.

## Normal Goods vs. Inferior Goods

[Inferior goods](https://www.investopedia.com/terms/i/inferior-good.asp) are the opposite of normal goods. Inferior goods are goods whose demand drops as consumers' incomes rise. As an economy improves and wages rise, consumers will prefer a more costly alternative to inferior goods. The term "inferior" doesn't refer to a good's quality but to its affordability.

Public transportation tends to have an income elasticity of demand coefficient that is less than zero, meaning that its demand falls as income rises, classifying public transport as an inferior good. Most people prefer to drive a car if they can afford it.

Inferior goods include all of the goods and services that people purchase only because they cannot afford normal goods.

## Normal Goods vs. Luxury Goods

[Luxury goods](https://www.investopedia.com/terms/l/luxury-item.asp) commonly have an income elasticity of demand that is greater than one and include items like expensive cars, vacations, fine dining, and gym memberships.

Consumers tend to spend a greater proportion of their income on luxury goods as their income rises, whereas people spend an equal or lesser proportion of their income on normal and inferior goods as their income increases.

## Example of a Normal Good

Jack earns $3,000 per month and spends 40% of his income on food and clothing, or $1,200 per month. If his income rises to $3,500 per month for a 16% increase in income, Jack can afford more, so he may increase his purchases or demand for food and clothing to $1,320 per month for a 10% increase or \[ ($1,320 - $1,200) ÷ $1,200 \] x 100.

Food and clothing are considered normal goods for Jack because he increased his purchases by 10% when he realized a 16% raise. His income elasticity of demand is .625 or (10/16). Since food and clothing have an income elasticity of demand of less than one, Jack's food and clothing are normal goods.

## How Are Normal Goods Affected During a Recession?

Most products, or normal goods, tend to experience a decrease in demand during a recession, as periods of economic contraction generally reduce consumer income, resulting in fewer goods being purchased.

## What Influences Normal Goods From Inferior Goods and Luxury Goods?

Goods may be classified as normal, inferior, or luxury depending on the region or country where the item is demanded or sold.

## What Is the Income Effect?

The income effect is the resulting change in demand for a good or service caused by an increase or decrease in a consumer's income or purchasing power. As income rises, the income effect assumes that people will begin to demand more goods, such as normal goods.

## The Bottom Line

Normal goods are products such as food, clothing, and household appliances. Demand for normal goods increases as income rises and decreases when it falls. The income elasticity of demand formula measures the change in demand and prices in response to a change in income.