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开奖号码历史查询: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开奖号码历史查询: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开奖号码历史查询:real income. These goods may also be associated with people who typically fall into a lower 澳洲幸运5开奖号码历史查询:socioeconomic class.

The demand for inferior goods increases when incomes fall or the 澳洲幸运5开奖号码历史查询:economy contracts. When this happens, inferior gওoods become an affordable substitute for more expens🐻ive goods.

Inferior Good Examples

Food

Groceries are among the most common examples of inferior pro⛎ducts 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 i♔ndividual may opt for an inferior product, such as canned meat or frozen food.

In addition, the way individuals consume food may be different when their incomes drop. They may be less likely to eat out, especially at more expensive restaurants, 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 tiers. For example, a used Honda ma✤y be considered an inferior good compare🦩d to a new Tesla.

Along with everyday transportation, other aspects of travel may be considered superior 🐈or inferior go๊ods.

Consider the hotel you may stay 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 inco🌊me is plentiful.

When you have more money, you may also choose to attend different entertainment events or fly first class as opposed to opting for ch🌄eaper, 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, e🐷ggs, cereal, or peanut butter.

Consumers may purchase these cheaper generic brand products when their incomes are lower,ꦿ and make the switch to p༒opular 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开奖号码历史查询:customers may not change their behavior 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 products are bette🦩r than their more expensive brand-name counterparts. In these cases, the demand for inferior goo🥀ds 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开奖号码历史查询:income elasticity of demand.

Other Types of Goods

Giffen Goods

Giffen goods are rare forms of inferior goods that have no ready substitute or alternative. They can be such goods as bread, rice, and potat💙oes.

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 lower socioeconomic class. 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 go✨ods 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开奖号码历史查询:Normal goods are in greater demand when incomes increase. Normal go𝐆ods 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 ൲servic🍃es, designer handbags and luggage, certain automobiles, and haute couture (fashionable, expensive clothes produced by recognized designers).

Veblen Goods

A Vꦓeblen good is an item whose increase in pricꩲe 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, theory hold🐓s that more investors would be interested in buying it as there is greater perceived 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.