Kinds of goods

Question 1

Inferior good

Answer 1

Increase in income will cause a fall in demand (e.g. cheap bread)

Question 2

Normal good

Answer 2

Increase in income will cause an increase in demand (e.g. clothing, household appliances)

Question 3

Luxury good

Answer 3

Increase in income will lead to an unproportional increase in demand

Question 4

Complementary goods

Answer 4

Goods which are used together (e.g. TV and dvd-player)

Question 5

Substitute goods

Answer 5

Goods which are alternatives (e.g. Pepsi and coca-cola)

Question 6

Giffen goods

Answer 6

A rare type of good in which an increase in price will cause an increase in demand as other necessities get too costly (e.g. if the price of wheat increases, a peasant can’t buy meat -> buys more wheat)

Question 7

Veblen / snob good

Answer 7

Increase in price encourages people to buy more, because they think expensive is better (e.g. Ferraris, Hermes)

Question 8

Public good

Answer 8

Goods with characteristics of non-rivalry and non-excludability (e.g. national defence, law enforcement)

Question 9

Merit goods

Answer 9

Goods which the government wants to encourage with good externalities (e.g. education, outdoor gyms)

Question 10

Demerit goods

Answer 10

Goods which negative externalities, which the government wants to discourage (e.g. alcohol, tobacco)

Question 11

Private goods

Answer 11

Goods with rivalry and excludability, need to be bought before using

Question 12

Free goods

Answer 12

Good with no opportunity cost (e.g. street lamps, breathing air, sunlight)