Inferior good: Difference between revisions
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==Definition of inferior goods== | ==Definition of inferior goods== | ||
An inferior good is one for which demands falls when income rise. When incomes are low, people consume the inferior good because that is what they can afford. When their income rises and they can afford better goods, they consume less of inferior goods. | |||
When the price of an inferior good falls, two things happen: | |||
* 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. | |||
Revision as of 14:36, 15 November 2022
Definition of inferior goods
An inferior good is one for which demands falls when income rise. When incomes are low, people consume the inferior good because that is what they can afford. When their income rises and they can afford better goods, they consume less of inferior goods.
When the price of an inferior good falls, two things happen:
- 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.
Author: Sonia María Soriano Marín
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