economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

, neutral goods refers either to

goods In economics, goods are anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...

whose

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

is independent of

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

, or those that have no change on the consumer's utility when consumed. Under the first definition, neutral goods have

substitution effect In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect. When a ...

s but not

income effect The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption (as measured by their pr ...

s. Examples of this include prescription medicines such as insulin for diabetics. An individual's income may vary, but their consumption of vital medicines remains constant. The second definition says that a good is neutral if the consumer is ambivalent towards its consumption. That is, the consumption of that good neither increases nor decreases the consumer's

utility In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish ...

. For example, if a consumer likes texting, but is neutral about the data package on his phone contract, then increasing the data allowance does not alter his utility. An

indifference curve In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is ''indifferent''. That is, any combinations of two products indicated by the curve will provide the c ...

—constructed with data allowance on the Y axis and text allowance is on the X axis forms a vertical line.

References

Goods (economics) {{trade-stub