![\"Good_Bad_and_Ugly_Goods\"](\"https:\/\/commoncents.blogwyrm.com\/wp-content\/uploads\/2016\/03\/Good_Bad_and_Ugly_Goods-1.png\")
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Good goods are what are generally termed ordinary goods by economists.\u00a0 An ordinary good possesses a negatively sloped demand curve.\u00a0 As the price of the good rises, there is less consumption of it as consumers seek out substitutes and alternatives.\u00a0 A substitute is a good that serves the same function but costs less.\u00a0 Switching out Bombay Sapphire for Beefeater is the kind of switch that economists mean by the term \u2018substitution\u2019 although they, no doubt, would never stoop so low as to buy a lesser gin.\u00a0 In contrast, giving up gin and tonics permanently in favor of tea-totaling falls under the heading of \u2018alternative\u2019.\u00a0 In either case, the consumer generally responds to an increase in price by changing their behavior so that they consume less when the vendor asks more.<\/p>\n
Good goods further sub-divide into three categories called: inferior, normal (or necessary), and luxury. \u00a0This sub-categorization reflects the natural evolution in most consumers that, as their income grows, they themselves grow accustomed to better styles of living.\u00a0 I borrowed this latter terminology from the divorce court lawyers who argue that their client is entitled to alimony that supports the client in the style to which the client has become accustomed.\u00a0 Levity aside, each category reflects the income elasticity of demand of a good found within its bounds.\u00a0 Economists define income elasticity of demand (eM) as the ratio between the percentage change in the quantity demanded to the percentage change in the household income.<\/p>\n
As a person\u2019s income grows his fractional change in income is positive.\u00a0 If he decides that he no longer needs to eat ramen noodles every night because he now has enough money to go out for a burger from time to time, then the fractional change in ramen demand is negative.\u00a0 The ratio between the two is also negative and the good is inferior.\u00a0 More simply put, as a person\u2019s\u00a0income\u00a0grows his need to settle for a good he would otherwise not buy diminishes.\u00a0 Thus ramen is an inferior good.<\/p>\n
Normal and luxury goods have positive elasticity, meaning that the quantity demanded typically grows as income grows.\u00a0 The difference between these types of goods lies the magnitude of the elasticity.\u00a0 An elasticity less than one means that changes in income do little to change the quantity of the good demanded whereas an elasticity greater than one means that a small change in income (or in a related fashion price) makes a big change in the amount demanded.\u00a0 Normal goods fall into the former category (as a result they are sometimes called necessities) and luxury goods fall into the latter.\u00a0 Food is typically a normal good and the consumer will buy his staples, say a gallon of milk, each week for the most part regardless of the change in price or his income.\u00a0 Fine gin is regarded by many as a luxury item (although it shouldn\u2019t be); to be bought when the price is right or the take home pay is sufficient to allow an indulgence.<\/p>\n
In deference to any actual economists who may read this, I do want to be clear that in the last paragraph I played fast and loose and blurred the distinction between income elasticity of demand and price elasticity of demand.\u00a0 They are distinct but highly-interrelated concepts, ultimately connected in a much broader definition of elasticity in personal value.\u00a0 Here I am imagining something like elasticity defined as the ratio of percentage change in demand to percentage change in the percent of the household expenditure associated with buying the good.\u00a0 A professional can either work that concept out in detail or prove\/argue why it can\u2019t work \u2013 it won\u2019t change the fact that each of us weighs the demand for a good by more than the change in price or in income with all other things held constant.<\/p>\n
Bad goods are what economists call Giffin goods. These goods defy the law of demand in that their demand curve is upward sloped.\u00a0 As the price increases so too does the demand.\u00a0 The big brains claim a Giffen good is typically<\/p>\n
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- an inferior good<\/li>\n
- does not have easily available substitutes<\/li>\n
- purchase of it must be a substantial fraction of the total household expenditure meaning that the good is purchased only due to the limited income of the household.<\/li>\n<\/ul>\n
The oft-cited, Giffin-good, example is a staple food depended upon by the poor.\u00a0 As its price rises, additional income used to buy other goods becomes slimmer and the household is forced to buy more of the cheaper but price-rising good just to be able to eat.\u00a0 In the example above, if ramen increases in price, our hypothetical burger-muncher may have visit Five Guys less often because he has to sink more of his income into ramen just to have something to eat each day.\u00a0 Sir Robert Giffen claims to have seen this behavior in Victorian England but certain economists assert that there is no such thing<\/a>.<\/p>\n
The ugly good is synonymous with what economists call a Veblen good.\u00a0 Like the Giffen good, demand for a Veblen good rises as its price rises.\u00a0 However, the rise in the demand reflects the good as a status symbol showing that the purchaser is truly a king among men in that he can afford more of what others can\u2019t afford at all.\u00a0 Conspicuous consumption, which is another name for the kind of behavior that supports a Veblen good, is featured prominently in the rather amusing first part of Chesterton\u2019s The Queer Feet<\/em> and the reader is directed here<\/a> for a nice quote.<\/p>\n
So there you have it.\u00a0 A concise, if not precise, summary of how economists categorize goods and their corresponding elasticities.\u00a0\u00a0 It would be an interesting follow-up to see if their analysis, papers, and books, which are goods in and of themselves, are good, bad, or ugly.<\/p>\n","protected":false},"excerpt":{"rendered":"