Necessity good
Encyclopedia
In economics
a necessity good is a type of normal good
. Like any other normal good, when income rises, demand increases. 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. 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 can't live without and won't likely cut back on even when times are tough, for example food, power, water and gas. .
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. .
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
a necessity good is a type of normal good
Normal good
In economics, normal goods are any goods for which demand increases when income increases and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand...
. Like any other normal good, when income rises, demand increases. 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. 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 can't live without and won't likely cut back on even when times are tough, for example food, power, water and gas. .
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
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
. 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
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
and stable earnings
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
regardless of the state of the overall stock market. .