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 p.180..:

• 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.

Difference between Giffen Goods and Inferior goods

The difference between Giffen goods and inferior goods can be clearly established on the basis of the following arguments:

• 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 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

Some examples are:

• 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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