There are few or no alternatives, with very little variability in price or quality. Examples include things like milk, bread, butter, flour, and sugar. These are products whose demand increases with the increase in the consumer income level and vice-versa. These goods are also characterized as necessary or essential goods.
When this happens, consumers will be more willing to spend on more costly substitutes. Some of the reasons behind this shift may include quality or a change in a consumer’s socioeconomic status. Inferior and normal goods are two opposite terms and remain interrelated based on consumer desire, affordability, and behavior. The former is a class of products and services whose demand decreases with the consumer income level. The latter refers to goods whose demand increases as the economy and income of its population grow. These are goods whose demand decreases with increased consumer income levels.
Luxury Goods
- Demand for normal goods tends to have a direct relationship with income.
- However, consumers should also consider quality and desirability when making purchasing decisions.
- For producers, understanding the demand patterns for inferior goods can help them strategize their marketing and pricing strategies to target specific income segments.
- In economics, an inferior good is a good whose demand has an inverse relationship with consumer income.
- Some examples of normal goods include high-end clothing, luxury cars, and gourmet food products.
Instead, it marks the change in consumer preferences due to income growth and their instant switch to more affordable goods. Inferior goods are an essential concept in economics and business that helps us understand consumer behavior, purchasing power, and market demand. They are typical of lower quality or desirability and experience a decrease in demand when a consumer’s income increases. In contrast, inferior goods have a negative income elasticity of demand, meaning that as the consumer’s income increases, the demand for inferior goods decreases. “Inferior good” is an economic term that refers to an item that becomes less desirable as the income of consumers increases.
Examples of Normal Goods
At the same time, consumer behavior varies among countries and geographic regions. Consumer behavior is determined by various factors, including the prevailing traditions and geographic or climate characteristics. Therefore, certain goods can be considered example of inferior goods inferior in one geographic region, while in the other region, the same goods will be considered normal.
Examples of Inferior Goods in Different Contexts
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. If you consume less of a product if there is an increase in your income, the product is an inferior good. If is inferior because it gives you less satisfaction and you switch to better products if your budget permits. In the example above, automobile A is an inferior good for those with higher incomes.
What Is the Difference Between a Giffen Good and an Inferior Good?
Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand. Inferior goods are a type of economic good that experiences a decrease in demand when a consumer’s income increases. In other words, as the consumer’s income increases, they are less likely to purchase inferior goods. When people have less money, they tend to buy these kinds of products. But when their incomes rise, they often give these up for more expensive items.
Generic or store-brand products are often considered inferior goods because they typically offer lower prices and quality compared to their branded counterparts. As consumers’ income levels rise, they may choose to purchase the more expensive, higher-quality branded products instead. In summary, the key difference between normal goods and inferior goods lies in how consumer demand for them changes with income levels.
