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 :

• 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 established based on 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 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

The most common types of substandard products are :

• Edibles. Edibles are the most common use of inferior products. For example, buy groceries at a local market. These items are cheaper than similar items in supermarkets and similar shops. As they are not branded, they are cheaper and there is not much difference in quality.
• Transportation. Another common low-quality item is shipping. Customers with lower disposable incomes are more likely to use public transport, such as trains and buses. As their income increases, they may decide to buy a car instead of relying on public transport. Fast food

Some consider fast food to be a second-class product, although many consumers, regardless of their income level, prefer it. Today, fast food is a poor substitute for regular food compared to dining out in a fancy restaurant. Dining out is more expensive and tends to be reserved for those who have more money.

• Place of residence.The travel stay may also be shorter. Clients with less money may choose to stay in a small hotel or hostel during their trip rather than a more luxurious establishment. As income increases, they may prefer to live in high-end "commodity" accommodations, such as hotels or resorts. generic branding

Another popular example of low quality is generic brands. These products are often much cheaper than branded products but are often made with the same ingredients or to the same standard of quality. Many generic products come from major brands and are sold under the generic name at a lower price. Understanding customer behavior and supply and demand are essential for companies that produce non-standard products. When customers have less disposable income, they are more likely to buy inferior products, which often increases demand. At the same time, demand for these goods is fairly stable in most economic situations. Companies that produce non-standard goods should expect a significant increase in demand for their products during a recession when a large part of the population experiences a significant decline in income.

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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