What Is an Inferior Good?

"Inferior good" is an economic term that describes a good that people buy less of when they earn more money. These goods fall out of favor when incomes and the economy improve, as consumers begin buying more costly 澳洲幸运5官方开奖结果体彩网:substitutes instead.

Understanding Inferior Goods

According to economic theory, the demand for inferior goods decreases as income increases or the economy improves.

When this happens, consumers are willing to spend on more costly substitutes. Some of the reasons for this shift may include a quality preference or a change in a consumer's 澳洲幸运5官方开奖结果体彩网:socioeconomic status.

Inferior goods, which are the opposite of normal goods, are anything that a consumer demands less of if they have a higher level of 澳洲幸运5官方开奖结果体彩网:real income. These goods may also be associated with people who typically fall into a lower 澳洲幸运5官方开奖结果体彩网:socioeconomic class.

The demand for inferior goods increases when incomes fall or the 澳洲幸运5官方开奖结果体彩网:economy contracts. When this happens, inferior goods become an affordable substit♔ute for more expensive goods.

Inferior Good Examples

Food

Groceries are among the most common examples of inferior products because food is♛ a constant necessity that must be acquired.

However, the price level at which consumers buy food may vary. As opposed to eating a steak for dinner, an ind𓆏ividual may opt for an inferior product, such as canned meat or frozen food.

In addition, the way individuals consume food may be differe💜nt when their incomes drop. They may be less likely to eat out, especially at more expensive re༒staurants, and prefer preparing meals at home. One method is simply a superior substitute for the other.

Transportation

🎶 When incomes are low, people may opt to take🐷 public transport. When their incomes rise, they may stop riding the bus and, instead, take taxis or even buy cars.

In addition, a vehicle purchase may be classified by different t🧸iers. For example🍬, a used Honda may be considered an inferior good compared to a new Tesla.

Along with everyday transportation, other aspꦡects of travel may be considered superior or inferior goods.

Consider the hotel you may st🍨ay at, depending on the state of your personal finances. A motel by♊ the airport may be an inferior good you choose when you have less income. A boutique luxury hotel may be a superior good you select when your income is plentiful.

When you have mo🎃re money, you may also choose to attend different entertainment events or fly first class as opposed to opting for che🍸aper, inferior travel options.

Brands

A McDonald’s coffee may be an inferior good compared to a Starbucks coffee. That is, when a consumer's income drops, they may replace their daily Starbucks java with the more affordable McDonald’s brew.

On the other hand, when a consumer's income rises, they may leave their McDonald's coffee behind for the more expensive Starbucks coffee.

Other examples of inferior goods are grocery store-brand products such as bread, milk, eg♏gs, cereal, or peanut butter.

Consumers may purchase these cheaper generic brand products when their incomes are lower, and make the switch to popular brand-name 🌟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 or use the same ingredients as the more expensive brand-name goods.

Inferior Goods and Consumer Behavior

Demand for inferior goods is commonly dictated by consumer behavior. Typically, demand for inferior goods is mainly driven by people with lower incomes or when there's a contraction in the economy that causes people broadly to become concerned about their finances.

But that isn't always the case. Some 澳洲幸运5官方开奖结果体彩网:customers may n𝄹ot change their behavi♑or despite enjoying more income. They may continue to purchase inferior goods.

Consider a consumer who gets a raise from their employer. Despite the rise in income, they may continue to buy McDonald's coffee because they prefer it over Starbucks' brew. Or they could feel that spending more for the Starbucks coffee just isn't worth it.

Similarly, many people find that grocery store-brand productꩵs are better than their more expensive brand-name cou🍸nterparts. In these cases, the demand for inferior goods is just a matter of personal preference.

Inferior goods differ across the world. 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.

Demand for a normal good increases when people's incomes start to increase, giving it a positive 澳洲幸运5官方开奖结果体彩网:income elasticity of demand.

Other Types of Goods

Giffen Goods

Giffen goods are rare forms of inferior goods that ha💮ve no ready subs🐎titute or alternative. They can be such goods as bread, rice, and potatoes.

The only difference between Giffen goods and traditional inferior goods is that demand for the former increases even when their prices rise, regardless of a consumer's income.

Many Giffen goods are considered staples, especially in areas where people live in a l🐷ower socioeconomic clas♌s. When the prices of Giffen goods increase, consumers have no choice but to spend a larger amount of money on them.

So they may spend more money on rice because that's all they can afford to buy, even if the price keeps rising. Products such as meat, on the other hand, become luxuries, as they become far too expensive and out of reach.

Giffen good🏅s are named for the Scottish economist Sir Robert Giffen.

Normal Goods

A normal good is the opposite of an inferior good. 澳洲幸运5官方开奖结果体彩网:Normal goods are in greater demand when inc🥂omes increase. Normal goods are also called necessary🅷 goods.

An example is organic bananas. If a consumer's income is low, they may buy regular bananas. If their income rises and they have a few extra dollars to spend each month, they may choose to buy organic bananas. Other examples of normal goods are clothing and water.

Luxury Goods

Luxury goods are not deemed essential to living or necessities. These goods are highly desired and can be purchased when a consumer's income rises.

In other words, the ability to purchase luxury goods is dependent on a consumer's wealth or assets. Luxury items include cleaning and cooking serviceꦉs, designer handbags and luggage, certain automobiles, and haute couture (fashionable, expensive clothes produced by recognized designers).

Veblen Goods

🀅A Veblen good is an item whose increase in price may actually result in higher sales. This type of good is often a subset of a luxury good. It can also defy traditional concepts of economics.

For example, consider a piece of artwork that sells for $100. Should the artwork be valued at $1 million, th🐟eory holds that more investors would be interested in buying it as there is greater perꦆceived value.

The Bottom Line

An inferior good is an item for which demand drops when people's income increases. During times of economic prosperity, consumers are more likely to buy normal goods and to invest in luxury goods.

If a consumer's income drops, they are more likely to buy lower-priced items, seek generic brands, avoid traveling, and change their eating habits.