Inferior goods are unlikely to provide the latter, thus why its consumption decreases. In economics, graphical representations help visualize the relationship between variables and simplify complex concepts. In the case of inferior goods, a graph can help illustrate how the quantity demanded changes in response to changes in consumers’ income levels.
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- This means that when consumer income rises, the demand for inferior goods declines.
- For example, something as simple as fast food may be considered an inferior good in the U.S., but it may be deemed a normal good for people in developing nations.
- When people start earning well or their socioeconomic standing changes, they switch to more expensive products, making such goods they used to buy less desirable.
- They are typical of lower quality or desirability and experience a decrease in demand when a consumer’s income increases.
Awareness of Personal Preferences and Needs
Now that we’ve established what inferior goods are and how they differ from normal goods, what are some examples? 5 common examples of inferior goods include inexpensive food, cheap cars, public transportation, generic brands, and payday loans. Typical examples of inferior goods include “store-brand” grocery products, instant noodles, and certain canned or frozen foods. Although some people have a specific preference for these items, most buyers would prefer buying more expensive alternatives if they had the income to do so.
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Examples of generic brands include generic grocery store products and off brand clothing and shoes. Unlike inferior products, the necessary goods have a positive price or income elasticity of demand. However, a product that is inferior for one person could be normal for another at the same time, depending on the country and geography. Inferior goods are economic goods that experience a decrease in demand when a consumer’s income increases.
Inferior Goods Demand Curve
Conversely, when income levels decrease, the demand for inferior goods increases as consumers become more price-sensitive and look for cheaper alternatives. Consumers will generally prefer cheaper example of inferior goods 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 summary, the graph illustrates the negative relationship between consumers’ income levels and the quantity demanded.
Public transportation, such as buses and trains, is often considered an inferior alternative to owning a car. Inferior goods are often considered less desirable or lower in quality than their alternatives. Consumers who purchase inferior goods usually do so because of budget constraints rather than preference.
When people’s incomes are low, they may opt to ride public transport. When their incomes rise, they may stop riding the bus and, instead, take taxis or even buy cars. In addition, buying a vehicle may be classified by different tiers, as a used Honda may be considered inferior to a new Tesla.
For normal goods, demand increases as income rises, while for inferior goods, demand decreases as income rises. Both types of goods play important roles in the economy, and understanding these differences can help businesses and policymakers make informed decisions about production, pricing, and policy. When people have lower incomes, they may choose to purchase generic versions of products, such as store-brand cereal or medication, because they are more affordable. However, as their income increases, they may choose to purchase higher-priced, name-brand products instead, resulting in a decrease in demand for generic brands.
