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Understanding Utility and Types of Goods

The document discusses various types of goods in economics, categorizing them into public and private goods, general, Giffen, and Veblen goods based on price, and normal, comfort, luxury, and inferior goods based on income. It explains the characteristics of each type, including examples such as roads for public goods and branded products for Veblen goods. Additionally, it covers common and club goods, highlighting their supply and exclusivity features.

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Dilshad ali
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58 views4 pages

Understanding Utility and Types of Goods

The document discusses various types of goods in economics, categorizing them into public and private goods, general, Giffen, and Veblen goods based on price, and normal, comfort, luxury, and inferior goods based on income. It explains the characteristics of each type, including examples such as roads for public goods and branded products for Veblen goods. Additionally, it covers common and club goods, highlighting their supply and exclusivity features.

Uploaded by

Dilshad ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

DAILY CLASS NOTES

Economy

Lecture - 07
Utility
2

Utility

Pubic and Private Goods:


❖ Public Goods:

➢ These goods are provided by the government.

➢ They are generally non-excludable and non-rival

➢ Example: Roads, Bridge, School, Hospital, Police Station, Metro, Bus, National
defence, etc.

❖ Private Goods:

➢ They are owned and operated by private individuals or organisations.


➢ They are generally excludable and rival, meaning consumers need to pay for them
and there's a limited supply.
➢ When an individual buys an item, that particular item is no longer available to
others. Most consumer goods fall into this category.
➢ Example: HDFC ATM, private schools, etc.

Types of Goods Based on Price:

❖ General Goods:

➢ These goods follow the law of demand i.e. with the increase in price of goods, its
quantity demanded decreases.

➢ Example: Fruits, Cars, etc.

❖ Giffen Goods:

➢ The Giffen paradox is an exception to the law of demand.

➢ A rare type of good, where an increase in price causes an increase in demand.


➢ The reason is that the income effect of a rise in the price causes you to buy more
of these cheap goods because you can't afford more expensive goods.
➢ These goods do not follow the law of demand.

➢ For example, if the price of wheat rises, a poor peasant may not be able to afford
meat anymore, so has to buy more wheat. The price of sanitisers and medicines
increased during the COVID pandemic, yet their demand increased.
3

❖ Veblen/Snob Goods:

➢ A good where an increase in price encourages people to buy more of it. This is

because they think more expensive goods are better.

➢ Examples: Antique pieces, branded products, etc.

Types of Goods Based on Income:

❖ Normal Goods:

➢ Demand increases with increase in income.

➢ Example: Clothes, shoes, vehicle. Etc.

❖ Comfort Goods:

➢ A good which isn't a necessity, but gives enjoyment/utility.

➢ Example: subscription to Netflix, take-away food, etc.

➢ A comfort good may become a luxury.

❖ Luxury Goods:

➢ An increase in income causes a bigger percentage increase in demand.

➢ Examples: Watch brands like Rolex, Patek Philippe, Vehicle brands like Rolls Royce

etc.

➢ Note: A luxury good is also a normal good, but a normal good isn't necessarily a

luxury good.)

❖ Inferior Goods:

➢ An increase in income causes a fall in demand.

➢ For example individuals with increased income use less and less public transport.

Common and Club Goods:

❖ Common Goods

➢ They are non-excludable and rival, meaning they are free but limited in supply.

➢ Governments often manage these natural resources for consumers.

➢ For example, a government body could create fishing quotas to prevent overfishing.
4

❖ Club Goods:

➢ They are excludable and non-rival, meaning consumers pay for them and they are
unlimited in supply.

➢ These goods could have a flat subscription fee, or companies could have tiered
services or memberships.

➢ Examples are NETFLIX and other streaming services.



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