Normal good

In economics, a normal good is a type of a good for which consumers increase their 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. Conversely, the demand for normal goods declines when the income decreases, for example due to a wage decrease or layoffs.

Whether a good is categorized as a normal good or an inferior good is based on empirical observations, not some essential element of a good. Indeed, the same good may be a normal good for one group of consumers and an inferior good for another group. For example, for moderate-income consumers, a BMW 3 Series car might be a normal good, but for an upper-income group, it might be an inferior good.

There is a positive correlation between the income and demand for normal goods, that is, the changes income and demand for normal goods moves in the same direction. That is to say, that normal goods have an elastic relationship for the demand of a good with the income of the person consuming the good.

In economics, the concept of elasticity, and specifically income elasticity of demand is key to explain the concept of normal goods. Income elasticity of demand measures the magnitude of the change in demand for a good in response to a change in consumer income. the income elasticity of demand is calculated using the following formula,

Income elasticity of demand= % change in quantity demanded / % change in consumer income.

In mathematical terms, the formula can be written as follows:

${\displaystyle \xi _{i}={\frac {\Delta Q_{/}Q}{\Delta Y/Y}}}$, where ${\displaystyle Q}$ is the original quantity demanded and ${\displaystyle Y}$ is the original income, before any change.

A good is classified as a normal good when the income elasticity of demand is greater than zero and has a value less than one. If we look into a simple hypothetical example, the demand for apples increases by 10% for a 30% increase in income, then the income elasticity for apples would be 0.33 and hence apples are considered to be a normal good.