Independent goods are
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
that have a zero
cross elasticity of demand
In economics, the cross elasticity of demand or cross-price elasticity of demand measures the percentage change of the quantity demanded for a good to the percentage change in the price of another good, ceteris paribus. In real life, the quantity ...
. Changes in the price of one good will have no effect on the
demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
for an independent good. Thus independent goods are neither
complements nor
substitutes.
For example, a person's demand for nails is usually independent of his or her demand for bread, since they are two unrelated types of goods. Note that this concept is subjective and depends on the consumer's personal
utility function
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
.
A
Cobb-Douglas utility function implies that goods are independent. For goods in quantities ''X''
1 and ''X''
2, prices ''p''
1 and ''p''
2, income ''m'', and utility function parameter ''a'', the utility function
:
when optimized subject to the budget constraint that expenditure on the two goods cannot exceed income, gives rise to this demand function for good 1:
which does not depend on ''p''
2.
See also
*
Consumer theory
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 pref ...
*
Good (economics and accounting)
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...
References
Goods (economics)
Utility function types
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