Inferior good

Definition of inferior goods

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.

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

• 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.

Author: Sonia María Soriano Marín

.