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Chapter 4: Problem 1

Define: a. normal good b. inferior good c. substitute d. neutral good e. complement

Short Answer

Expert verified
a. Normal Good: Demand increases with income increase. b. Inferior Good: Demand decreases with income increase. c. Substitute: A good that can replace another. d. Neutral Good/Necessity: Demand unaffected by income. e. Complement: A good that is consumed with another good.

Step by step solution

01

Define Normal Good

A normal good refers to any goods for which demand increases when income increases. In other words, consumers buy more of these goods when their income rises.
02

Define Inferior Good

An inferior good is the opposite of a normal good. It is a type of good whose demand declines when income rises. These are goods that consumers buy less of as they start earning more.
03

Define Substitute

A substitute in economics usually refers to a good that can replace another good to satisfy the same needs or desires. For example, if the price of coffee increases, people might begin to drink more tea. Hence, tea acts as a substitute for coffee.
04

Define Neutral Good

A neutral good, also known as a necessity, is one whose demand does not change with a change in consumer income. Some examples could be basic food items, clothing or medicine.
05

Define Complement

A complement in economics refers to a good that is consumed with another good. In other words, these are goods that are typically used together. One cannot function or is less valuable without the other. For example, a printer and printer ink are considered complements.

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