economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...

, neutral goods refers either to

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 t ...

whose

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 ...

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. Fo ...

, 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 pref ...

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 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 ...

. 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—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