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Good Y is a normal good since the amount purchased increases from Y1 to Y2 as the budget constraint shifts from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases. In economics, inferior goods are
In economics, a normal good is a type of a good which experiences an increase in demand due to an increase in income, unlike inferior goods, for which the opposite is observed. When there is an increase in a person's income, for example due to a wage rise, a good for which the demand rises due to the wage increase, is referred as a normal good.
It is the opposite of a Giffen good. Since the existence of Giffen goods outside the realm of economic theory is still contested, the pairing of Giffen goods with ordinary goods has gotten less traction in economics textbooks than the pairing normal good/inferior good used to distinguish responses to income changes. The usage of "ordinary good ...
A good's Engel curve reflects its income elasticity and indicates whether the good is an inferior, normal, or luxury good. Empirical Engel curves are close to linear for some goods, and highly nonlinear for others. For normal goods, the Engel curve has a positive gradient. That is, as income increases, the quantity demanded increases.
In the figure below, good Y is a normal good since the amount purchased increased as the budget constraint shifted from BC1 to the higher income budget constraint, BC2. However, good X is an inferior good since the quantity purchased by the consumer decreased as their income increased.
A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in quantity demanded. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
Figure 3: with an increase of income, demand for normal good X 2 rises while, demand for inferior good X 1 falls. The figure on the right (figure 3), shows the consumption patterns of the consumer of two goods X 1 and X 2, the prices of which are p 1 and p 2 respectively, where B1 and B2 are the budget lines and I 1 and I 2 are the
the good in question must be an inferior good, there must be a lack of close substitute goods, and; the goods must constitute a substantial percentage of the buyer's income, but not such a substantial percentage of the buyer's income that none of the associated normal goods are consumed.