Inferior good
Inferior goods are those whose demand decreases as the consumer's income increases, which means that less is consumed the more money one has. This happens because the consumer, which has a higher income, can opt for substitute goods that can be more varied or of better quality.When the price of an inferior good falls, can happen two things [1]:
- Since the price of the inferior good has fallen in comparison to other goods, consumers are more likely to substitute it for other goods, and also the quantity demanded increases as a result of the substitution effect.
- Consumers are indeed richer as a result of the lower price. Due to the inferiority of the good, this reduces the quantity needed.
At some income levels, a good might be a normal good for a person, but at other income levels, it might be an inferior good. Understanding these traits can aid in evaluating their significance as inferior goods frequently share certain characteristics. For instance, the majority of inferior products fall into a broad category with a few other higher-quality (and more expensive) products. Consider the hamburger: it is a specifically defined good that falls within the broad category of meat. There are various more expensive and higher-quality meat options available, like fillet mignon, prime rib, and veal. It makes sense that some people would eat less hamburger as their wealth increased since they could now acquire better-quality alternatives that nevertheless satisfy the same basic needs but do so more satisfactorily [2].
Difference between Giffen Goods and Inferior goods
The difference between Giffen goods and inferior goods can be established based on the following arguments [3]:
- Goods whose demand increases when prices rise are called Giffen goods.
- Goods whose demand decreases when consumer income rises above a certain level are called inferior goods.
- Giffen goods violate the law of demand, and inferior goods are part of consumer goods and services and are determinants of demand.
- There are no close substitutes for Giffen goods. On the contrary, inferior goods have better-quality substitutes.
- When prices fall, the overall price effect of Giffen goods will be negative. On the other hand, the price impact of inferior goods will be positive when prices fall.
- The demand curve for a Giffen good is positively sloped, whereas the demand curve for an inferior good is negatively sloped.
Characteristics of inferior goods
In economics, inferior goods are characterized by the variation which the demand for these products undergoes according to the income of consumers [4]:
- Negative income elasticity: An increase in people's income causes a decrease in the quantity demanded of the inferior good, due to this the increase in people's income has a negative income elasticity, the higher a person's budget, the lower the consumption of an inferior good.
- Positive demand curve: An increase in the price of these goods does not harm demand, which, despite the higher price of commodities, is the cheapest option for lower-income consumers.
Consequently, this demand curve will always be positive, due to the income effect.
Examples of inferior goods
Some examples of inferior goods are [5] [6] [7] :
- Bread: is a cheap, filling food that consumers switch from to more expensive meat or convenience foods as their incomes rise.
- Margarine: is a food that consumers switch from margarine to butter, although this has recently become less true due to increased health awareness.
- Bus transportation: is a service that consumers switch from to their cars when they can afford to purchase a car.
- Color TV: it was an inferior good, because people whose income raised, change from a white and black TV to a color one.
- Buying properties: when more people can buy their own homes, demand for privately leased housing declines.
Foot notes
| Inferior good — recommended articles |
| Veblen effect — Normal good — Substitute goods — Demand — Engel's law — Income effect — Perfectly elastic demand — Prestigious price strategy — Price |
References
- Anderton, A. (2004). Economics.Pearson.
- Browning,E.,Zupan, M. (2020).Microeconomics: Theory and Applications.Wiley.
- Chaunan, SPS. (2009). MICROECONOMICS: Theory and Applications, Part 1. University of Delhi.
- Lipsey, R., Harbury, C.(2004). First Principles of Economics.Oxford University Press.
- Myers, D. (2009). Constructions Economics: A new approach.Spon Press.
- Rittenberg, L. (2012). Principles of Microeconomics. Flatworld knowledge.
- Sampat, M., Mallinath, M., Amitava, G.,(2013). Macroeconomics.New Delhi.
Author: Sonia María Soriano Marín
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