Normal Goods

• When demand for a product increases when income increases we call this a normal good
• Normal goods will always have a positive income elasticity of demand i.e. + sign
• A normal good will have a positive YED - as when income rises so will demand
• Necessities are products that have a positive YED between 0-1
• There will be a rise in demand but it will be smaller than the increase income
• We say these products are income inelastic
• Luxuries are products that have a positive YED that is greater than 1 - the demand for luxury goods will increase at an even greater percentage rate than income, we call these goods income elastic