What Is a Neutral Good?

Mary McMahon

A neutral good is product or service that remains a consistent necessity no matter how much consumers make. Toilet paper is an example. Consumers will need toilet paper whether they are unemployed or living on a trust fund. While they may vary the quality in response to economic pressures, they will still need to buy some form of this neutral good to meet their needs.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

The market for neutral goods can remain very stable, as companies always have a built-in consumer base. Other examples include prescription medications for people with chronic illnesses, and staple foods. Choice does not play a major role in neutral good purchases, unlike luxuries that consumers can choose to do without when they do not have very much money. Consumers need these things even when they do not have ample funds available, and thus manufacturers of such goods can rely on steady sales numbers.

Tracking neutral good sales can provide important information about economic health and activities within the economy. Analysts can look at the kinds of price points consumers tend to hit. When consumers cluster around low price points for neutral goods, this can be an indicator of decreased purchasing power, as they are making the decision to pay less in order to conserve money. More sales at higher price points indicates a willingness to pay a premium, often linked with making more money and feeling comfortable with the added expense.

Government benefits programs need to consider neutral good pricing when determining how much to award in benefits. If recipients do not get enough money to cover the neutral goods they need to survive, this can create a potentially dangerous situation. The consumer may do things like skipping doses of medication or undereating to pay for necessities. At the same time, benefits programs do not want to pay for premium goods that recipients may prefer to low cost items.

Organizations with an interest in low income populations may conduct studies on the pricing of neutral goods. This information can be important for studies on upward mobility, costs of living, and challenges faced by low income populations. In regions where the pricing on neutral goods is very high, it can be difficult to meet basic needs, and consumers may be at a disadvantage. Low pricing may make it easier to save money, invest in activities like buying homes and businesses, and can contribute to a sense of economic safety and stability.

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