What Are Inferior Goods And Normal Goods?

Along with everyday transportation, many aspects of travel may be considered superior or inferior goods. Consider the hotel you may stay at based on how your personal finances are doing. You may also choose to attend different entertainment events or fly first class as opposed to opting for cheaper, inferior travel options. Inferior goods tend to be goods that are viewed as lower quality, but can get the job done for those on a tight budget, for example, generic bologna or coarse, scratchy toilet paper. Consumers prefer a higher quality good, but need a greater income to allow them to pay the premium price.

An inferior good is an economic term that describes a good whose demand drops when people’s incomes rise. These goods fall out of favor as incomes and the economy improve as consumers begin buying more costly substitutes instead. Inferior goods refer to items that have a negative elastic relationship with demand and wages.

Economics

This income change can be the result of a rise in wages etc., or because existing income is freed up by a decrease or increase in the price of a good that money is being spent on. Normal goods are those whose demand increases as people’s incomes and purchasing power rise. As such, a normal good will have a positive income elasticity of demand coefficient but it will be less than one. Inferior goods are goods for which demand actually declines as consumers’ real incomes rise, or rises as incomes fall.

Elasticity of Demand & Supply Revision Quiz

Generally, inferior goods tend to be cheaper, lower-quality products that people consume out of necessity or due to limited budget constraints. They often serve a basic need or function, but are not seen as desirable or luxurious. Inferior goods aren’t necessarily bad; they simply represent a more economical way of achieving the same goal. Instead of a catered fancy meal, it is not bad to make a simple meal at home. Inferior goods represent items that are simply in less demand as people have more disposable income. The goods whose demand does not change with a change in income of the consumer.

Inferior Good: Definition, Examples, and Role of Consumer Behavior

The income effect describes the relationship between an increase in real income and demand for a good. Inferior goods are unlikely to provide the latter, thus why its consumption decreases. “Inferior good” is an economic term that refers to an item that becomes less desirable as the income of consumers increases.

On the other hand, when income decreases, people tend to buy more inferior goods. A number of economists have suggested that shopping at large discount chains such as Walmart and rent-to-own establishments vastly represent a large percentage of goods referred to as “inferior”. Consumers will generally prefer cheaper cars when their income is constricted. As a consumer’s income increases, the demand for the cheap cars will decrease, while demand for costly cars will increase, so cheap cars are inferior goods. In the past, inferior goods were generally regarded as being of poor quality. This would even include spoiled products such as broken eggs and shoes with manufacturing defects.

When the price of a product increases relative to other similar products, consumers will tend to demand less of that product and increase their demand for the similar product as a substitute. When people’s disposable income is low, they may choose to have a road trip rather than fly to their destinations because road trips cost less than flights. People may also stay in motels rather than hotels to reduce accommodation costs. If they example of inferior goods choose to travel, they may buy economy tickets instead of the first class to save money.

Market Overview:

When the economy is in good shape and income increases, people buy fewer inferior goods but when the economy is not strong and people’s income comes down, they buy more inferior goods. This means that the demand and income move in different directions in the case of inferior goods. When one of these factors increases, the other decreases, and vice versa. Inferior goods are in highest demand among people living on low incomes. The knowledge in these classes of products has led to different classes of business.

The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises. A product may lose market share for many reasons, but the substitution effect is purely a reflection of frugality. If a brand raises its price, some consumers will select a cheaper alternative.

1. The kid will have almost the same satisfaction from the bicycle as that kid who was bought a motorbike.
2. When nominal income increases without any change to prices, this means consumers can purchase more goods at the same price, and for most goods, consumers will demand more.
3. On the other hand, when a consumer’s income rises, they may substitute their McDonald’s coffee for the more expensive Starbucks coffee.
4. When a consumer’s income drops, they may substitute their daily Starbucks java for the more affordable McDonald’s brew.
5. A McDonald’s coffee may be an inferior good compared to a Starbucks coffee.

The kid will have almost the same satisfaction from the bicycle as that kid who was bought a motorbike. Another example is that of a person who travels using a bus, and another one using a plane. Both will reach their destinations, but the person using the bus will do so at a lower cost.

Rightward and Leftward Shift in Demand Curve

1. Economists have praised the classification of products as inferior or normal, arguing that it helps poorer consumers to enjoy utilities as would wealthier persons.
2. When people’s disposable income is low, they may choose to have a road trip rather than fly to their destinations because road trips cost less than flights.
3. On the other hand, when income decreases, people tend to buy more inferior goods.
4. When their incomes rise, they may stop riding the bus and, instead, take taxis or even buy cars.
5. Inexpensive foods like instant noodles, bologna, pizza, hamburger, mass-market beer, frozen dinners, and canned goods are additional examples of inferior goods.

A drop in income would result in an increase in the demand for the good or service, and the demand curve for the inferior good would shift to the right. Other examples of inferior goods are no-name grocery store products such as cereal or peanut butter. Consumers may use these cheaper generic brand products when their incomes are lower, and make the switch to name-brand products when their incomes increase. Grocery store brand products provide an insightful example of how inferior goods are not necessarily of lower quality. Many of these goods come from the same product line as the more expensive name-brand goods.