For each of the following goods or services, indicate whether you think they are normal or infer

For each of the following goods or services, indicate...

Key Concepts

Normal Goods

Normal goods are those for which the demand increases as consumers' income increases. They are typically seen as desirable or high-quality goods that people prefer to consume when they have higher purchasing power. In the context of consumer behavior, normal goods show a direct relationship between income and demand, meaning that as consumers become wealthier, they allocate a larger portion of their income to such products or services.

Inferior Goods

Inferior goods are those for which the demand decreases as consumers' income rises. These goods are usually considered lower quality or less desirable substitutes that consumers opt for when their financial resources are limited. As consumers' incomes improve, they tend to switch from inferior goods to more expensive or higher quality alternatives, reflecting a negative relationship between income and demand for these items.

Income Effect

The income effect describes how a change in consumers' income can influence their buying behavior and the demand for certain goods. It is a critical concept in distinguishing between normal and inferior goods, as it explains why demand for a product may increase or decrease in response to changes in income. When analyzing goods like luxury technology items, used products, or specialized services, the income effect helps determine whether a product is perceived as a normal or an inferior good.

Transcript

00:01 Today we're going to be looking at whether or not a good is considered final or intermediate and which purchase of the, we got here, four examples, four or five examples are considered consumption expenditure, investment, or government expense.

00:20 All right, so let's go through these questions one by one and try my best to give you guys an explanation of my thinking here.

00:28 So the first example is airline ticket bought by a student.

00:34 So let's go ahead, before we actually answer these questions, let's go ahead and identify what each of these means.

00:40 So final good is an item that is bought by the consumer, right? and when the consumer buys it, it is the end user.

00:50 So for example, if you go to a stolen by a pencil, you will be buying a pencil and using it, right? so you are the end used.

01:00 So that is basically what the final good is.

01:03 Intermediate good is an item which is produced by one firm, bought by other firms to use as a input factor in a production of another good.

01:14 So someone buys something from this company, right? they will use it in this company to give it to the end user over here.

01:25 Right, final, it is just one step.

01:28 It's from this company to this one.

01:30 In intermediate, there's actually another step within the process.

01:35 Cool.

01:36 So now we can go into the first question here, which is airline, airline ticket bought by a student.

01:44 Right, so let's go here, question one.

01:46 Right, so when we buy supposed students over here, student, and this is the airplane service.

01:54 Airplane service.

01:56 Right, so we are buying a ticket from the airline service.

02:01 And we will be, what do we do with the airline ticket? obviously, we take it to go apply.

02:06 So this is the end user, right? and out these three, so we found out first step, it is definitely a final good, final good, because the student will be the end user.

02:20 The second step is to find out whether or not it's a consultant.

02:22 Consumption expenditure, investment, or government expenditure.

02:27 So in this case, there's nothing to do with government so we can take that out of the running.

02:34 Investment, we're actually not investing in an airline ticket, right? we're just purchasing it and using it.

02:40 Therefore, it's not investing.

02:42 We are actually just buying as a consumption good.

02:44 So question one would be a final good and a consumption.

02:48 Let me be short of the consumption.

02:51 All right.

02:56 So second question.

02:57 New airlines bought by southwest airlines, right? yeah, new airlines, sorry, new airlines bought by southwest airlines.

03:07 So what do we see here? we see south west airlines.

03:12 So let's go on airplane supply here, airplane supply.

03:16 Southwest airlines is purchasing airplane from this.

03:20 But they're not using it, right? southwest airlines aren't buying airplanes to use it for themselves.

03:24 They're actually buying it for their end users, which is, customers, right? or, you know, travelers.

03:32 So what does that make southwest airlines here? so this makes actually the airplane an intermediate bid, right? because we see multiple steps to get to this end user.

03:44 Right.

03:44 So we can find out, we can right here that it is an intermediate bid.

03:50 Right.

03:50 Now let's go back to our second step, consumption, investment, or government.

03:54 Again, government is not within any of these steps here, but the airplanes.

04:01 Consumption expenditures, so southwest airlines is not buying it, as i explained before, they're not buying the airplanes and using it, right? so they're not consuming it themselves.

04:11 So it won't be that, but it would rather be investment because their invest, southwest airlines here is investing in airplanes, right, to make more profit by selling that service to the end user, which in this case is the customer...

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