Necessary Good

Examples of Necessary Good in the following topics:

• Income Elasticity of Demand

  • A positive income elasticity is associated with normal goods.
  • This is typical of a luxury or superior good.
  • This is characteristic of a necessary good.
  • These are called sticky goods.
  • This is an inferior good (all other goods are normal goods).

• Defining Market Failure

  • Market failure occurs when the price mechanism fails to account for all of the costs and benefits necessary to provide and consume a good.
  • Market failure occurs when the price mechanism fails to account for all of the costs and benefits necessary to provide and consume a good.
  • The market will fail by not supplying the socially optimal amount of the good.
  • direct provision of merit and public goods - governments control the supply of goods that have positive externalities.
  • subsidies - reducing the price of a good based on the public benefit that is gained.

• Optimal Quantity of a Public Good

  • To determine the optimal quantity of a public good, it is necessary to first determine the demand for it.
  • Often, the government supplies the public good.
  • The supply curve for a public good is equal to its marginal cost curve.
  • The public good provider uses cost-benefit analysis to decide whether to provide a particular good by comparing marginal costs and marginal benefits.
  • The optimal quantity of public good occurs where MB = MC.

• Cost Flow Assumptions

  • ., FIFO) are necessary to determine the cost of goods sold and ending inventory.
  • Inventory cost flow assumptions are necessary to determine the cost of goods sold and ending inventory.
  • Companies make certain assumptions about which goods are sold and which goods remain in inventory (resulting in different accounting methodologies).
  • The only requirement, regardless of method is that: The total cost of goods sold plus the cost of the goods remaining in the ending inventory for financial and tax purposes is equal to the actual cost of goods available.
  • Underestimates or overestimates cost of goods sold if prices are falling or rising, respectively and cost flow disagrees with ideal, physical flow of goods, though the agreement of cost flow and ideal, physical flow of goods is arguably not important

• Elasticity of Demand

  • Only goods which do not conform to the law of demand, such as a Veblen good and a Giffen good, have a positive PED.
  • The PED of a good can also be used to predict the incidence (or "burden") of a tax on that good.
  • Breadth of definition of a good: The broader the definition of a good (or service), the lower the elasticity.
  • Necessity: The more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price, such as in the case of insulin for those that need it.
  • This does not hold for consumer durables such as the cars themselves, however; eventually, it may become necessary for consumers to replace their present cars, so one would expect demand to be less elastic.

• National Income

  • All of the measures are especially concerned with counting the total amount of goods and services produced within some boundary.
  • The boundary is usually defined by geography or citizenship, and may also restrict the goods and services that are counted.
  • For instance, some measures count only goods and services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.
  • The impetus for that major statistical effort was the Great Depression and the rise of Keynesian economics, which prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible .
  • In order to count a good or service, it is necessary to assign value to it.

• Determinants of Price Elasticity of Demand

  • A good's price elasticity of demand is largely determined by the availability of substitute goods.
  • Availability of substitute goods: The more possible substitutes there are for a given good or service, the greater the elasticity.
  • Consumers will attempt to buy necessary products (e.g. critical medications like insulin) regardless of the price.
  • The demand for durables (cars, for example) tends to be less elastic, as it becomes necessary for consumers to replace them with time.
  • Breadth of definition of a good: The broader the definition of a good, the lower the elasticity.

• Mapping Preferences with Indifference Curves

  • A consumer would be just as happy with any combination of Good X and Good Y on the curve .
  • Perfect substitutes are often homogeneous goods.
  • In this particular series of indifference curves it is clear that 'Good X' and 'Good Y' are perfect substitutes for one another.
  • The perfect right angle in this series of indifference curves implies that the utility of 'Good X' and 'Good Y' are entirely interdependent.
  • This is to say that in order to enjoy one good it is necessary to also have the other.

• Average and Marginal Cost

  • It is the cost of producing one more unit of a good.
  • The amount of marginal cost varies according to the volume of the good being produced.
  • The average cost is the total cost divided by the number of goods produced.
  • Short run average costs vary in relation to the quantity of goods being produced.
  • Long run average cost includes the variation of quantities used for all inputs necessary for production.

• Seasonal Production

  • Inventory management is primarily about specifying the size and placement of stocked goods to protect the regular and planned course of production against the random disturbance of running out of materials or goods.
  • This is the case, for example with seasonal goods such as Christmas cards that should satisfy all demands in December, but cards left in January have little or no value.
  • As a result, it is necessary to treat seasonality seriously in forecasting practice for inventory control.
  • Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. ""
  • Early ordering, in addition, helps the company adjust its inventory demand if necessary.