Necessity good

In economics a necessity good is a type of normal good. Like any other normal good, when income rises, demand rises. But the increase for a necessity good is less than proportional to the rise in income, so the proportion of expenditure on these goods falls as income rises.[1] This observation for food is known as Engel's law. The income elasticity of a necessity good is thus between zero and one.

Necessity goods are goods that we cannot live without and will not likely cut back on even when times are tough, for example food, power, water and gas.[2][3]

The more necessary a good is, the lower the price elasticity of demand, as people will attempt to buy it no matter the price.

Most necessity goods are usually produced by a public utility. According to Investopedia-site, stocks of private companies producing necessity goods are known as defensive stock. Defensive stock are stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market.[2][3]

See also

References

  1. ↑ Varian, Hal (1992). "Choice". Microeconomic Analysis (Third ed.). New York: W.W. Norton. pp. 116–143 [p. 117]. ISBN 0-393-95735-7. [...] as the consumer gets more income, he consumes more of both goods but proportionally more of one good (the luxury good) than of the other (the necessary good).
  2. 1 2 "Cyclical Versus Non-Cyclical Stocks". Investopedia. Retrieved 2009-03-18.
  3. 1 2 "Defensive Stock". Investopedia. Retrieved 2009-03-18.
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