Types of Goods (Economics)

Economic Goods §

Note:

• Normal Good $\subset$ Ordinary Good
• Giffen Good $\subset$ Inferior Good

Depending on Price and Quantity Demanded §

• Ordinary Good: Follows the Law of Demand: $\text{Price}\propto 1/Q_{\text{Demand}}$
• Giffen Good: $\text{Price}\propto Q_{\text{Demand}}$
  • ⇒ Cause: Income Decrease ⇒ Buy cheaper Giffen Good
  • Irish Famine. the price of potatoes and meat increased subsequently. Compared to meat, potatoes could be much cheaper as a staple food.
    • ⇒ Potatoes were a Giffen Good

Depending on Income and Quantity Demanded §

Notation:

• YED:= Income elasticity of demand-
• Income Effect (IE) is important in understanding economic goods

• Normal Good: $\text{Income}\propto Q_{\text{Demand}}$
  • i.e. $\frac{\partial x_1(p_1,p_2,\bar{I})}{\partial I}>0$ (derivative from Marshallian Demand)
  • Necessity Good (Necessities)
    • $0<\frac{\partial x_1}{\partial I}<1$
  • Luxury Good
    • $1<\frac{\partial x_1}{\partial I}$
    • …i.e. a normal good for which the proportional consumption increase exceeds the proportional Increase
• Inferior Good: $\text{Income}\propto 1/Q_{\text{Demand}}$
  • i.e. $\frac{\partial x_1}{\partial I}<0$
• Quasilinear Good: $Q_{\text{Demand}}$ doesn’t change on income change
  • i.e. $\frac{\partial x_1}{\partial I}=0$

For the set of all goods we can thus show the following Venn diagram:

Game Theory Goods §

• Common-pool resources are also called Common Goods.
• Public Goods
  • The production of a public good is a Prisoner’s Dillemma situation.
  • Basic examples: national defense, street lighting, a good schooling district, etc.