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Types of goods
Published on May 30, 2019 11 min
Other Talks in the Series: Introduction to Microeconomics
Hi I'm Dr. Sangarallngam Ramesh. Welcome to this Henry Stewart talks, here is Introduction to Microeconomics talk number 7. In this talk we'll be analyzing the different types of goods which economists define, and how demand and supply for good will depend on the nature of the good itself, in other words the type of the good.
So why do economists classify goods into different types? So because the demand for goods can change due to price factors or non-price factors as we've seen and for example true non-price factors are change in consumers income or change in the distribution of income. How demand for good is affected, ceteris paribus which simply means all other factors are unchanged except the income of the consumer or the distribution of all the consumer will depend on the type of the good. Economists classify goods into four different types, not based on their intrinsic properties, in other words the quality of the good or other factors related to the good, but simply on how demand would change when the income level changes. So in this case consumers define and analyze consumer and firm behavior with respect to four different types of goods and these are normal goods, inferior goods, giffen goods and veblen goods.
So in the case of a normal good, which we can take for example as a new pair of jeans, when the nominal income, the income paid by firms to workers changes, increases then this will mean that the consumer will be able to buy more new pairs of jeans. So in this demand and supply diagram for new pairs of jeans, where we have the price of jeans on the vertical y-axis and the quantity of genes on the horizontal x-axis, the upward sloping supply curve SS and the downward sloping demand curve DD, we see that when the consumer is nominal income increases the demand curve will shift to the right as shown by the 2 blue arrows. So we could say that for normal good, the new pair of jeans, as income rises the demand curve will shift to the right. We can also consider the impact of the change in demand for an inferior good.