Normal Goods

A normal good is one for which, holding all other factors constant except for income, an increase in income leads to an increase in the quantity demanded, and conversely, a decrease in income leads to a decrease in the quantity demanded.

Effects of Income Changes on Quantity Demanded

When a person's income increases, they tend to consume more of the goods they already consume and add new goods to their consumption basket. Therefore, the demand for goods and services is influenced by the income consumers receive. The higher the income, the more willing consumers are to buy more units of a good or to pay more for the same quantity of it. An increase in income also leads consumers to enter new markets where they previously did not participate, as they can now afford greater expenditures.

The opposite is also true: a decrease in income reduces the quantity demanded because consumers cut back on spending on non-essential goods and also reduce the quantity of the goods they do consume to balance the reduction in income. Most goods behave in this normal way.