Necessity

Background

In economics, the concept of necessity identifies goods or services that individuals continue to consume despite fluctuations in income. A necessity is typically essential for daily living and well-being such as food, basic clothing, and shelter. Because necessities are essential, their consumption does not significantly increase or decrease with changes in income.

Historical Context

Throughout history, the distinction between necessities and luxuries has influenced economic theories and policies. Historically, societies have focused on ensuring the availability of necessities, particularly for lower-income groups, to maintain social stability and well-being.

Definitions and Concepts

A necessity is defined as a good or service for which the income elasticity of demand is less than one. This means that as an individual’s income rises, the consumption of such goods or services increases at a slower rate. In contrast, a luxury is a good or service where the income elasticity of demand is greater than one, indicating a faster increase in consumption as income rises.

Major Analytical Frameworks

Classical Economics

Classical economists laid the groundwork for understanding the essential needs of individuals, emphasizing the production and distribution of essential goods like food and simple clothing.

Neoclassical Economics

Neoclassical economics builds on classical principles by analyzing consumption patterns. Here, necessities are distinguished from other goods through consumer preferences and budget constraints.

Keynesian Economics

Keynesian economic theory considers the consumption of necessities as essential to sustaining aggregate demand. Policies ensure that even during economic downturns, necessities remain affordable and accessible to maintain economic stability.

Marxian Economics

Marxian economics examines the necessity through the lens of class struggle, focusing on how access to essential goods often determines social conditions and stability within different economic systems.

Institutional Economics

Institutional economists study how various institutions and policies impact the availability and distribution of necessities within society, advocating for structures that ensure essential goods are accessible to all.

Behavioral Economics

Behavioral economics investigates the psychological and social factors influencing the consumption of necessities and their impact on consumer decision-making processes.

Post-Keynesian Economics

Post-Keynesian theory emphasizes the importance of necessities in creating stable long-run economic growth and equitable distribution of income.

Austrian Economics

Austrian economists focus on the subjective nature of value, where necessities are seen through individual relative preferences and priorities in consumption choices.

Development Economics

Development economists emphasize the critical role of fulfilling basic necessities in developing economies, linking access to necessities with improved living standards and economic growth.

Monetarism

Monetarist models often assume that access to and consumption of necessities stays relatively constant, with policies designed to control inflation and stabilize the broader economy to ensure affordability.

Comparative Analysis

Most economic schools agree on the importance of ensuring access to necessities, though reasons and methods vary. Classical and neoclassical economists allocate resources efficiently, whereas Keynesians promote intervention to maintain consumption. Marxian theorists highlight equity, whereas institutionalists and behavioral economists scrutinize policy impact.

Case Studies

Case studies illustrate various ways societies have ensured basic necessities, from government rationing during crises to welfare programs aimed at providing food and healthcare. These case studies provide insight into practical applications and outcomes of economic theories focusing on necessities.

Suggested Books for Further Studies

The General Theory of Employment, Interest, and Money by John Maynard Keynes
Poverty and Famines: An Essay on Entitlement and Deprivation by Amartya Sen
An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith

Engel Curve: A graph showing the relationship between income level and expenditure on particular goods. Essentials typically show a smaller slope as income increases.
Income Elasticity of Demand: A measure of how the quantity demanded of a good responds to a change in income. For necessities, this elasticity is less than one.
Luxury: A good or service with an income elasticity greater than one, meaning consumption increases disproportionately as income rises.

By understanding necessities through these frameworks, policymakers and scholars can effectively address essential needs within various economic landscapes.