A good is normal when the income elasticity of demand is greater than or equal to zero. In mathematical terms, good g is normal if and only if: In the above definition, Qx represents the quantity of good x demanded and Y represents the income of the given consumer being modeled. Intuitively, a good is normal if a change in the consumer's income causes the same direction change in the consumer's demand for good x. There are two types of normal goods: necessity goods and luxury goods. A normal good is classified as a necessity good when ξ < 1, whereas a normal good is a luxury good when ξ > 1. A good where ξ < 0 is an inferior good. According to economic theory, there must be at least one normal good in any given bundle of goods. Economic theory assumes that a good provides always marginal utility. Therefore, if consumption of all goods decrease when income increases, the resulting consumption combination would fall short of the new budget constraint frontier. This would violate the economic rationality assumption. When the price of a normal good is zero, the demand is infinite.
Examples
A caveat to the table above is that not all goods are strictly normal or inferior across all income levels. For example, average used cars could have a positive income elasticity of demand at low income levels – extra income could be funneled into replacing public transportation with self-commuting. However, the income elasticity of demand of average used cars could turn negative at higher income levels, where the consumer may elect to purchase new and/or luxury cars instead. Another potential caveat is brought up by "The Notion of Inferior Good in the Public Economy" by Professor Jurion of University of Liège. Public goods such as online news are often considered inferior goods. However, the conventional distinction between inferior and normal goods may be blurry for public goods. Consumption of many public goods will decrease when a rational consumer's income rises, due to replacement by private goods, e.g. building a private garden to replace use of public parks. But when effective congestion costs to a consumer rises with the consumer's income, even a normal good with a low income elasticity of demand will exhibit the same effect. This makes it difficult to distinguish inferior public goods from normal ones.
