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.

• 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.

• Other Factors of Production

  • Finished goods are the output.
  • Land:which includes the site where goods are produced as well as all the minerals below and above the site;
  • Labor:which includes all human effort used in production as well as the necessary technical and marketing expertise; and
  • Capital: which are the human-made goods used in the production of other goods, such as machinery and buildings .
  • Factors of production (or productive 'inputs' or 'resources') are any commodities or services used to produce goods or services.

• 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.

• Natural Resource Market

  • Some natural resources that are components of the production process are not sold, but are public goods.
  • Public goods, like air and riverways, are non-excludable and non-rivalrous.
  • This means that anyone can use these goods without paying a fee, and if one person uses the good it does not limit the ability of another to use the good.
  • For example, pollution is a result of production processes that can foul the public goods of air and waterways.
  • Land is one of the three factors of production, can be used to mine other natural resources and is absolutely necessary if a person wants to have a "brick and mortar" location where they can sell their goods.

• Willingness to Pay and the Demand Curve

  • In general as the price of a good increases, the quantity demanded of that good decreases.
  • Sometimes circumstances may prevent a person from purchasing something they might desire, even if they have the necessary money.
  • Giffen goods are very rare and are defined by three characteristics:
  • It is an inferior good, or a good for which demand decreases as consumer income rises,
  • In this instance, bread is a giffen good.