What are Normal Goods?
Normal goods is a term that defines the change in demand for different goods and services that takes place when there is some sort of shift in the amount of income available to consumers. While typically this is related to situations where the demand for goods increases when income levels rise, the same general concept can be applied when income levels drop and certain goods actually increase in demand, owing to their lower cost. The basic idea behind this consumer theory is that the amount of income available will have a direct impact on the quantity of specific goods that are sold in the marketplace.
When considering normal goods, it is important to realize that the actual quality of the products in question does not enter into the equation. There is no distinction between inferior goods versus superior goods. The focus is on the quantity that is moved when income is at a given level, and not with the relative merits of one product over a similar product.
Understanding the current status of normal goods is helpful in several ways. First, considering shifts in demand that occur as income levels shift can often provide insights into how various sectors of the marketplace will be affected by those shifts. For example, if income levels increase significantly, this may mean that more consumers will purchase new vehicles, an event that increases the demand for new vehicle production. At the same time, this shift may mean that a number of consumers who previously relied on public transportation will no longer do so, creating a decrease in the demand for those services.
Suppliers and retailers can also utilize data related to normal goods when it comes to launching new products. If one takes the time to assess the current consumer priorities as they exist at the present income levels, it is easier to gauge if a new product will be economically feasible for those consumers, and if there is a good chance that demand can be sustained over the long term. From this perspective, understanding normal goods also makes it easier to set prices at a level that is attractive to consumers, but also likely to generate a decent profit for the seller.
It is important to note that a shift in one type of normal goods will often lead to a shift in a related type of normal goods. For example, if the demand for shoes should decrease, there is a good chance that the demand for socks will also decrease. Retailers can also use this information to their advantage by adjusting their inventory to match changes in demand for one good with the anticipated shift in demand for other goods that are normally purchased at the same time.
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