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Inferior Goods

Inferior goods exhibit a unique relationship between their demand and consumer income. Unlike normal goods, the demand for inferior goods decreases as consumer income increases. In other words, as people's income rises, they tend to buy less of these goods, and as their income falls, they buy more.

What You Need To Know

The decrease in demand for inferior goods when income rises is due to the income effect. As people's income increases, they can purchase higher-quality goods or substitute them with better alternatives, causing them to decrease their consumption of inferior goods. On the other hand, during economic downturns, when people's income decreases, the demand for some inferior goods might actually increase.

Examples of inferior goods include generic or lower-priced brands of certain food items (like instant noodles), public transportation, used clothing, and lower-end modes of transportation. For instance, as people's income increases, they may opt for more nutritious or higher-quality foods and choose to buy their own cars rather than rely on public transportation.

Consumer preferences play a role in defining goods as inferior. An inferior good for one individual may not be inferior for another. Some people might continue to purchase certain goods even when their income increases, simply because they prefer them over more expensive alternatives.

The status of a good as inferior can change over time and across different economic situations. In some cases, advancements in technology or changes in consumer preferences may elevate a good from being considered inferior to becoming a normal or even superior good.

On a demand curve graph, inferior goods have a negative income elasticity of demand, meaning the percentage change in quantity demanded is negative when income changes. This is in contrast to normal goods, where income elasticity is positive.