normal good

(noun)

A good for which demand increases when income increases and falls when income decreases but price remains constant.

Related Terms

Examples of normal 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).

  • Impact of Income on Consumer Choices

    • The simplest way to demonstrate the effects of income on overall consumer choice, from the viewpoint of Consumer Theory, is via an income-consumption curve for a normal good(see ).
    • As a result, it is useful to outline the differences in income effects on normal, inferior, complementary and substitute goods:
    • Normal:A normal good is a good with incremental increases or decreases in utility as quantity changes, demonstrating a predictable and simple linear relationship as income increases or decreases. demonstrates a graphical representation of the effects of income changes upon preference map.
    • Inferior:Inferior goods, or goods that are less preferable, will demonstrate inverse relationships with income compared to normal goods.
    • Complementary: Complementary goods are goods that are interdependent in consumption, or essentially goods that require simultaneous consumption by the consumer.

  • Deriving the Demand Curve

    • Generally speaking, normal goods will demonstrate a higher demand as a result of lower prices and vice versa.
    • The derivation of demand curves for normal goods is therefore relatively predictable in respect to the direction of the slope on a graph (see ).
    • Giffen Goods - Giffen goods are a situation where the income effect supersedes the substitution effect, creating an increase in demand despite a rise in price.
    • Neutral Goods - Neutral goods, unlike Giffen goods, demonstrate complete ambivalence to price.
    • This graph illustrates the derivation of a demand curve for these goods.

  • Demand Function

    • An individual's demand function for a good (Good X) might be written:
    • When a good is a "normal" good, there is a positive relationship between the change in income and change in demand; an increase in income will increase (shift the demand to the right) demand.
    • A superior good is a special case of the normal good.
    • In Figure III.A.2 an increase in income will shift the Demand function ("Demand") for a normal good to the right to DINCREASE.
    • For a normal good a decrease in income will shift the demand to DDECREASE.

  • Introduction to evaluating the normal approximation

    • Many processes can be well approximated by the normal distribution.
    • We have already seen two good examples: SAT scores and the heights of US adult males.
    • While using a normal model can be extremely convenient and helpful, it is important to remember normality is always an approximation.
    • Testing the appropriateness of the normal assumption is a key step in many data analyses.
    • The observations are rounded to the nearest whole inch, explaining why the points appear to jump in increments in the normal probability plot.

  • Importing

    • Imports are the inflow of goods and services into a country's market for consumption.
    • It is a good that is brought in from another country for sale.
    • Import of goods normally requires the involvement of customs authorities in both the country of import and the country of export; those goods are often subject to import quotas, tariffs, and trade agreements.
    • While imports are the set of goods and services imported, "imports" also means the economic value of all goods and services that are imported.
    • Comparative advantage is the concept that a country should specialize in the production and export of those goods and services that it can produce more efficiently than other goods and services, and that it should import those goods and services in which it has a comparative disadvantage.

  • Examining the Central Limit Theorem

    • The normal model for the sample mean tends to be very good when the sample consists of at least 30 independent observations and the population data are not strongly skewed.
    • The distribution of is approximately normal.
    • The Central Limit Theorem states that when the sample size is small, the normal approximation may not be very good.
    • Would the normal approximation be good in all applications where the sample size is at least 30?
    • For example, the normal approximation for the log-normal example is questionable for a sample size of 30.

  • Unsought Products

    • Life insurance is an example of a good that is often seen as a sought good because awareness of its benefits has grown.
    • Unsought Goods are goods that the consumer does not know about or does not normally think of buying.
    • Once the consumer is well-educated about the product, the good goes on to become a sought good.
    • Even though it is a classic example of an unsought good, it is quickly growing into a sought good.
    • This was to prevent the good from becoming an unsought good.

  • Normal Order

    • Normal order (sometimes called normal form) has a lot in common with the concept of triad "root position."
    • Normal order does the same, but in a more generalized way so as to apply to chords containing a variety of notes and intervals.
    • Normal order is the most compressed way to write a given collection of pitch classes.
    • Often, you'll be able to determine normal order intuitively using a keyboard or a clockface, but it's good to learn a process that will always give you the correct answer.
    • The ordering with the smallest interval is the normal order.

  • Benefits

    • Most tests based on the normal distribution are said to be robust when the assumption of normality is violated.
    • Although this sounds like a good thing because the Type I error rate is lower than the nominal rate, it has a serious downside: reduced power.
    • Tests assuming normality often have low power for leptokurtic distributions.
    • Because distribution-free tests do not assume normality, they can be less susceptible to non-normality and extreme values.
    • Therefore, they can be more powerful than the standard tests of means that assume normality.