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 which can be more varied or of better quality.

When the price of an inferior good falls, can happen two things:

• 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.

Relation with Giffen Goods

Giffen goods and inferior goods are very similar to each other in the sense that Giffen goods are special types of inferior goods. Both types of goods do not follow the general demand patterns established in the economy and are therefore special types of goods which consumers treat differently as market prices and income levels change. Giffen goods are goods for which demand will decrease when the price falls, as people do not tend to buy more of a Giffen good, even if prices are low, because they will look for better alternatives or spend their money on something else. As incomes rise, people will spend less on inferior goods, which they can now afford more expensive and better quality alternatives.

• Giffen goods and inferior goods are very similar to each other in the sense that Giffen goods are special types of inferior goods and do not follow the general demand patterns established in the economy.
• In the case of inferior goods, people will buy less product as income increases and more product as income decreases.

Characteristics of non-Giffen inferior goods

In economics, inferior goods are characterised by the variation which the demand for these products undergoes according to the income of consumers.

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 have a negative effect on 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

• Canned vegetables: People with lower incomes tend to rely on canned vegetables, whereas higher earners pay more for fresh vegetables.
• Fast food: When people earn less money they often choose fast food. When they earn more money, they tend to eat in more expensive restaurants.
• Public transport: when people earn more money, their demand for cars / taxis (the normal good in this situation) increases.
• Cheap motels: Those which can afford to stay in a more expensive hotel with more attentive service, more comfortable beds, etc.
• Generic and shop brands: When people have less money, they choose generic/store brands, which are often much cheaper. With more money, they often choose the normal good of branded products.

References

• Chaunan, SPS. (2009). MICROECONOMICS: Theory and Applications, Part 1. University of Delhi.
• Rittenberg, L. (2012). Principles of Microeconomics. Flatworld knowledge.

Author: Sonia María Soriano Marín

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