Classification of Products

From the preceding analysis it is clear that there are two distinct effects at work to bring about downward falling demand curve. Other effect including the two distinct one, viz., income and substitution effects- their relative pulls and pushes- may explain other shapes and slope of exceptional demand curves. An overview of this effect leads us to a classified list of products:

1. Normal products: Goods and services may be classified as ‘normal products’ if the quantity demand rises as incomes rises and falls as incomes falls. Here, income refers to a change in the real purchasing power rather than simply nominal change which may be neutralized by a proportionate price change.

2. Inferior Products: Certain are classified as ‘inferior’ because the demand for them falls as income rises (and vice versa).

3. Geffen Product: A special case of the inferior product arises when as price; more of the good in question is bought-resulting in an upward sloping demand curve, contrary to the normal law of demand. Such products are classified as giffen products, named after a nineteenth-century English economist who studied the respond to changes in the price of potatoes in Ireland.

4. Veblen Products: It has also been suggested the ‘luxury type’ products also display reverse price demand relationship, though for different reason to the of the Giffen products case. These are sometimes referred to as Veblen products, after the American economist, Torstein Veblen (1857-1929), who explored the phenomenon.

5. Basic necessities (Products): By contrast to the Veblen products, there are products which enter the consumption basket of all income class, high or low. These products which are provided at subsidized rate to the people below poverty line, as a part of minimum need programmed of a welfare state, may not be very responsive to price-income factor in a free market.

6. Miscellaneous Products: Public goods and services including public utilities like electricity, drinking water, education, security, health and hygiene related useful goods, public transport and park are often provide for “mass-consumption” at a subsidized rate by the Welfare Government.

Sometimes a contrast is drawn between merit goods and non-merit goods. Non-merit goods like alcohol and cigarettes are heavily taxed by the government so that their consumption is discouraged, whereas merit goods like life saving drugs are subsidized to promote production and consumption. This suggests the fact governmental policies also affect demand significantly.

Thus, we can talk about public-police-effect on demand. Easy consumer credit may promote the demand for car, or easy housing loan may promote the demand for houses.
 
Sometimes, a contrast is drawn between consumer goods (e.g., bread) and producer’s goods (e.g., machines) or between single-use-goods (e.g., drinks) and durable-use goods (shirts) within consumer goods. Similarly, within production goods category, we may have single-use and durable-use items. Such distinctions are important in analyzing the determinants of demand – their relative significance in influencing the buyer’s behavior.

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