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In economics, neutral goods are goods that have a demand that is not dependent to the income.
In economics, neutral goods are goods that have a demand that is not dependent to the income. It means that these goods have just "substitution effects" but don't have "income effects". As for "prescription medicines for people with medical conditions" - they have rather inelastic demand which means that their "income effect" equal their "substitution effect" - which differs from claim of absence of "income effect". (Liudmila Konstants, American University of Central Asia.)
Examples of neutral goods include prescription medicines for people with medical conditions, such as insulin for diabetics. Although an individual's income may vary their consumption of vital prescription medicines will remain constant (once again - it means that demand for these goods is perfectly inelastic or "income effect" equal its "substitution effect"). Arguably illicit drugs would fit into this category as anecdotally poor addicts will go to great lengths such as prostitution, theft and robbery to gain the income to pay for their addiction.
An alternative definition says that, a good is a neutral good if the consumer does not care about its consumption at all. That is, the consumption of that good will not increase the consumer's utility. For example, if a consumer likes texting, but not data package on his phone contract (i.e.data package is the neutral good here), then increasing the amount of data allowance will not increase his utility. If an indifference curve is constructed such that Data Allowance is measured on Y axis and Texting is on X axis, the indifference curve will be a vertical line.
- ^ Hal R. Varian, Intermediate Microeconomics: A Modern Approach, Seventh Edition, Norton, 2006