In summary, the key difference between normal goods and inferior goods lies in how consumer demand for them changes with income levels. 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. Brands also play a significant role in the discussion of inferior goods. For example, a McDonald’s coffee may be considered an inferior good compared to Starbucks coffee due to its lower cost.

Understanding Inferior Goods: Definition, Examples and Consumer Behavior

For instance, in parts of Asia, the demand for luxury watches and jewelry is quite high due to cultural beliefs surrounding wealth and status. In contrast, some European countries have a more reserved attitude towards flashy displays of wealth, making these luxury goods less desirable. In developing countries, food is a significant example of inferior goods due to its importance as a basic necessity.

Generic Brands

Along with everyday transportation, other aspects of travel may be considered superior or inferior goods. For example, a used Honda may be considered an inferior good compared to a new Tesla. The term “inferior good” refers to affordability, rather than quality, even though some inferior goods may be of lower quality. “Inferior” in this context doesn’t automatically mean low-quality, although this is a reasonable assumption to make based on the term. Inferior goods can be of high or low quality, although they tend to often be lower quality and cheaper. He compared the ratings and reviews of both hotels and realized that they were nearly identical.

Inferior Goods vs. Normal and Luxury Goods

In summary, the graph illustrates the negative relationship between consumers’ income levels and the quantity demanded. As income levels increase, consumers tend to buy less, opting for higher-quality alternatives instead. This relationship is represented by a downward-sloping demand curve on the graph. 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.

During recessions or times of high unemployment, many consumers look for ways to stretch their dollars. Inferior goods become especially important during these downturns because people tend to switch to less expensive options. For instance, in a recession, public transit use might spike as people try to cut costs on car expenses. The demand for inferior goods serves as a kind of economic indicator, hinting at how secure or stretched people feel financially. Unlike normal goods, inferior goods experience a decrease in demand when income rises. Conversely, luxury goods are desired by consumers who can afford them and whose demand increases with rising incomes.

• Normal goods have a direct relationship with changes in income and demand.
• In developed countries, public transport or fast-food meals might be considered inferior goods because people rely on them more when cutting costs.
• Individuals are less likely to need a payday loan when they are earning a lot of money and more likely to need a payday loan in times of financial distress.

Examples of Inferior Good

Products that are considered inferior by other people with higher income are considered normal by them. This illustrates how a product can only be made inferior if the consumer wants it. The behavior example of inferior goods of a particular consumer determines whether a good is considered normal or inferior. These are products whose demand increases with the increase in the consumer income level and vice-versa. Inferior goods are goods that the demand increases when the consumers’ income decrease. Conversely, the consumers’ will demand fewer inferior goods when their income increases.

Foods like instant noodles or canned vegetables are sometimes considered inferior goods because people buy them more when budgets are tight. They’re often affordable, easy to store, and versatile, making them popular when people need to save money. Starbucks, with its exquisite taste profiles and unique offerings, attracts consumers who are willing to pay a premium for their daily caffeine fix. As these consumers see their incomes rise or the economy improve, they may choose to upgrade from McDonald’s coffee to Starbucks coffee. The shift is driven by a desire for improved taste, an enhanced experience, and an aspiration to consume premium goods.

A class of product that is inferior for one group of people could be normal for the other group at the same time. However, only consumers’ spending capacities and preferences can determine which product or service is normal and inferior. Inferior goods are among the four classes of products besides normal goods, Giffen goods, and luxury goods. When your income rises you buy less Tesco value bread and more high quality, organic bread.

• As income levels increase, consumers tend to buy less, opting for higher-quality alternatives instead.
• In summary, the key difference between normal goods and inferior goods lies in how consumer demand for them changes with income levels.
• “Inferior” in this context doesn’t automatically mean low-quality, although this is a reasonable assumption to make based on the term.

As incomes rise, many individuals transition from buses and trains to personal vehicles, which are often seen as more convenient and prestigious. This trend can impact municipal budgets, as public transportation systems may lose fare revenue during economic growth. Policymakers can use demand elasticity insights to set appropriate fare structures and subsidies. The key distinction between inferior and normal goods lies in how demand shifts with income. Normal goods have a direct relationship with income—demand increases as income grows, often because they represent higher quality or more desirable options. For example, dining at upscale restaurants or purchasing branded clothing typically rises with income growth.

Rather, it denotes a shift in consumer preferences due to increased income and an immediate shift to more good offers. When customers spend less money, they are more likely to choose inferior goods over standard goods to cut costs. When their income rises, they may prefer to spend it on normal goods instead of inferior goods.

Importance in consumer behavior

When a person’s budget goes up, they usually stop buying things that aren’t as useful and start buying things that provide value for money. When the economy gets worse and there are more people out of work, the opposite happens. If perceptions change—like a product becoming more popular or trendy—an inferior good can shift to become a normal good. This often happens when lifestyles, technology, or social attitudes evolve.

An inferior good is a type of product whose demand decreases as consumers’ income or economic conditions improve. This shift in consumer behavior can be seen most prominently in the world of branded products, where premium and value-oriented brands often occupy different market segments. As incomes dropped and unemployment rose, many consumers switched to buying generic brands, cooking more at home, and relying on public transportation to save money. Stores reported higher sales of budget-friendly items as people turned to practical solutions to stretch their money. Similar shifts happened during the COVID-19 pandemic, with people cutting back on non-essentials and choosing cheaper alternatives.

An increase in income will result in an outward shift in demand for normal goods, given the latter is directly proportional to the former. On the other hand, there could be an inward shift in demand for inferior products as consumer preferences change depending on their spending capabilities, negatively affecting their demand. Inferior goods are characterized by consumers’ shift to more expensive products when they start earning well or change their socioeconomic status. The term “inferior” does not signify the quality of products or services in any manner.

However, when a consumer’s income increases, he or she can afford the more expensive substitutes. Typical examples of inferior goods include store-brand 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. Therefore, when incomes rise, demand for these items tends to decrease accordingly. In economics, the demand for inferior goods decreases as income increases or the economy improves.