Neutral good: Difference between revisions
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{{About|an economic term|the Dungeons & Dragons term|Alignment (Dungeons & Dragons)#Neutral good}} | {{About|an economic term|the Dungeons & Dragons term|Alignment (Dungeons & Dragons)#Neutral good}} | ||
In [[economics]], '''neutral goods''' refers either to [[good (economics)|goods]] whose [[demand]] is independent of [[income]],<ref name=":0">{{Cite book|title=Economics|last=Arnold|first=Roger A.|date=2008|publisher=Thomson South-Western|isbn=9780324538014|edition=Eighth|location=Mason, OH, USA|pages=58|oclc=131000286}}</ref> or those that have no change on the consumer's utility when consumed.<ref name=":1">{{Cite book|title=Intermediate microeconomics : a modern approach|last=Varian|first=Hal R.|publisher=W. W. Norton|year=2014|isbn=9780393919677|edition=Ninth|location=New York|pages=41|oclc=879663971}}</ref> | In [[economics]], '''neutral goods''' refers either to [[good (economics)|goods]] whose [[demand]] is independent of [[income]],<ref name=":0">{{Cite book|title=Economics|last=Arnold|first=Roger A.|date=2008|publisher=Thomson South-Western|isbn=9780324538014|edition=Eighth|location=Mason, OH, USA|pages=58|oclc=131000286}}</ref> or those that have no change on the consumer's [[utility]] when consumed.<ref name=":1">{{Cite book|title=Intermediate microeconomics : a modern approach|last=Varian|first=Hal R.|publisher=W. W. Norton|year=2014|isbn=9780393919677|edition=Ninth|location=New York|pages=41|oclc=879663971}}</ref> | ||
Under the first definition, neutral goods have [[substitution effect]]s but not [[income effect]]s. Examples of this include prescription medicines such as insulin for | Under the first definition, neutral goods have [[substitution effect]]s but not [[income effect]]s. Examples of this include prescription medicines such as [[insulin]] for [[diabetic]]s. An individual's income may vary, but their consumption of vital medicines remains constant.<ref name=":0" /> | ||
The second definition says that a good is neutral if the consumer is ambivalent towards its consumption. That is, the consumption of that good neither increases nor decreases the consumer's [[utility]]. For example, if a consumer likes texting, but is neutral about the data package on his phone contract, then increasing the data allowance does not alter his utility. An [[indifference curve]]—constructed with data allowance on the Y axis and text allowance is on the X axis forms a vertical line.<ref name=":1" /> | The second definition says that a good is neutral if the consumer is ambivalent towards its consumption. That is, the consumption of that good neither increases nor decreases the consumer's [[utility]]. For example, if a consumer likes texting, but is neutral about the data package on his phone contract, then increasing the data allowance does not alter his utility. An [[indifference curve]]—constructed with data allowance on the Y axis and text allowance is on the X axis forms a vertical line.<ref name=":1" /> | ||
==Income elasticity and classification== | |||
Neutral goods are sometimes classified using their [[income elasticity of demand]]. | |||
Goods with an income elasticity close to zero are considered neutral because changes in consumer income do not meaningfully affect their quantity demanded.<ref>{{cite web |title=4.05: The income elasticity of demand |url=https://socialsci.libretexts.org/Bookshelves/Economics/Microeconomics/Principles_of_Microeconomics_(Curtis_and_Irvine)/02%3A_Responsiveness_and_the_Value_of_Markets/04%3A_Measures_of_response-_Elasticities/4.05%3A_The_income_elasticity_of_demand |website=LibreTexts Social Sciences |publisher=LibreTexts |date=2022 |access-date=3 October 2025}}</ref> | |||
Because demand remains relatively unchanged as income rises or falls, neutral goods are distinct from [[normal good]]s—whose demand increases with income—and [[inferior good]]s—whose demand decreases as income increases.<ref>{{cite web |title=Income elasticity of demand |url=https://www.opentextbooks.org.hk/ditatopic/38813 |website=Open Textbooks for Hong Kong |publisher=Vocational Training Council |access-date=3 October 2025}}</ref> | |||
==References== | ==References== | ||
Latest revision as of 11:01, 23 November 2025
Script error: No such module "about". In economics, neutral goods refers either to goods whose demand is independent of income,[1] or those that have no change on the consumer's utility when consumed.[2]
Under the first definition, neutral goods have substitution effects but not income effects. Examples of this include prescription medicines such as insulin for diabetics. An individual's income may vary, but their consumption of vital medicines remains constant.[1]
The second definition says that a good is neutral if the consumer is ambivalent towards its consumption. That is, the consumption of that good neither increases nor decreases the consumer's utility. For example, if a consumer likes texting, but is neutral about the data package on his phone contract, then increasing the data allowance does not alter his utility. An indifference curve—constructed with data allowance on the Y axis and text allowance is on the X axis forms a vertical line.[2]
Income elasticity and classification
Neutral goods are sometimes classified using their income elasticity of demand. Goods with an income elasticity close to zero are considered neutral because changes in consumer income do not meaningfully affect their quantity demanded.[3] Because demand remains relatively unchanged as income rises or falls, neutral goods are distinct from normal goods—whose demand increases with income—and inferior goods—whose demand decreases as income increases.[4]
References
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