Normal Good vs Inferior Good Examples and Chart

This means that when consumer income rises, the demand for inferior goods declines. A demand curve shows the growth or decline in a product’s demand due to changes in the relative parameters. For example, the inferior goods demand curve reflects the difference in income levels and customer preferences and its impact on the demand. Inferior goods have an inverse relationship between income and demand. As the consumer’s income increases, the demand for inferior goods decreases. We can also turn to transportation as an example of an inferior good.

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Along with everyday transportation, many aspects of travel may be considered superior or inferior goods. Consider the hotel you may stay at based on how your personal finances are doing. You may also choose to attend different entertainment events or fly first class as opposed to opting for cheaper, inferior travel options. Paul Boyce is an economics editor with over 10 years experience in the industry. Currently working as a consultant within the financial services sector, Paul is the CEO and chief editor of BoyceWire.

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2. In addition, buying a vehicle may be classified by different tiers, as a used Honda may be considered inferior to a new Tesla.
3. 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.
4. Such goods indicate negative price elasticity but prove to be a more affordable and in-demand alternative for expensive ones in recession, economic contraction, or lower income.
5. The consumer shift occurs because they desire to lead a better lifestyle with more expensive and luxurious products.

Random Glossary term

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. It is essential to consider the value proposition of a product before making a purchasing decision. Sometimes, spending a little more money upfront may lead to long-term cost savings or a higher-quality product. However, consumers should also consider quality and desirability when making purchasing decisions.

Luxury Goods

Finally, consumers should be aware of their personal preferences and needs when identifying inferior goods. Just because a product is cheaper than its alternatives does not necessarily make it an inferior good. These items are often cheaper than their higher-quality alternatives and are considered inferior because of their lower quality or desirability. These goods are highly desired and can be purchased when a consumer’s income rises.

Examples of inferior good

Consumers should also consider the price-quality tradeoff when identifying inferior goods. A product that is significantly cheaper than its alternatives may be of lower quality or has fewer desirable features. Inferior goods are a unique type of economic good with distinct characteristics that differentiate them from other types of goods. Understanding the characteristics of inferior goods is essential to making informed decisions about purchasing and selling these goods in the market. Review the chart below to get a sense of how income impacts the demand for normal goods and inferior goods.

An inferior good is a category of products whose demand falls as consumers’ income rises. When people start earning well or their socioeconomic standing changes, they switch to more expensive example of inferior goods products, making such goods they used to buy less desirable. The word «inferior» has nothing to do with the quality of the items.

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On the other hand, lower-income or economic downturns drive demand for inferior goods, not pricing. 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.

Therefore, when incomes rise, demand for these items tends to decrease accordingly. The demand for inferior goods is mostly determined by consumer behavior. Due to their affordability, such goods are consumed by consumers with low income. However, when a consumer’s income increases, he or she can afford the more expensive substitutes. In economics, the demand for inferior goods decreases as income increases or the economy improves.