Difference Between Normal and Inferior Goods

The subject of Economics introduces us to the concept of different types of goods. These are of three types which are, Luxury goods, normal goods, and inferior goods.

Luxury goods refer to high maintenance and branded items. Normal goods refer to general items. Inferior goods refer to cheap items.

The further section will be focusing on Normal goods and Inferior goods.

Normal vs Inferior Goods

The main difference between normal and inferior goods is that the former reaches a quite high demand when the income of the consumer rises while on the other hand the latter reaches a low demand when the income of the consumer increases. Normal goods are direct to general and standard items and inferior goods are direct to cheap substituents.

6 1

Normal goods are those types of goods whose demand increases when a consumer’s income rises. These goods have a positive relationship with income and demand.

A positive increase in income leads to a positive increase in demand. Examples- clothes, taxis, organic food, high-end restaurants, organic pasta, noodles, whole wheat, electronics, home appliances, and food staples.

Inferior goods experience a decrease in their demand when the income of their consumers’ increases. These goods have a negative relation with the income generated by their consumers and the demand for these goods.

A positive increase in the consumer’s income leads to a negative drop in the demand for these inferior goods. Examples- supermarket coffee, cheese, and macaroni.

Comparison Between Normal and Inferior Goods

Parameters of ComparisonNormal GoodsInferior Goods
DefinitionGoods have a higher demand when their consumer’s income rises.Goods have a higher demand when their consumer’s income increases.
Correlation Between Demand and IncomeAs the consumer’s income increases the demand increases hence positive correlation.As the consumer’s income increases the demand decrease hence negative correlation.
Income ElasticityIncome elasticity is positive in this case.Income elasticity is negative herein.
Preferred WhenNormal goods are preferred when their cost prices are low.Inferior goods are preferred when their cost prices are high.
ExamplesCars, branded items, cold creams, milk, flat-screen TV, etc.Bicycles, coarse clothes, toned milk, etc.

What are Normal Goods?

Normal goods are directed to goods that have a higher demand when the consumer’s salary or daily income increases. Conversely, these goods reach a low demand when the consumer’s salary decreases.

For example- when wages increase, the demand for such types of goods also increases.

There exist a positive correlation between the demand for normal goods and the income of the consumers. A positive increase in the salary of buyers leads to a positive increase in the demand for normal goods.

Here are a few examples of normal goods:

  • Food & Drink- wine, rum, water, cakes, etc.
  • Transportation- luxury cars, sports cars, public transportation, etc.
  • Other- clothing, branded jewelry, electronics, household appliances, vacation, etc.

The income elasticity is positive in the case of normal goods. It indicates the magnitude of change in the demand of a good in response to a change in the income of a consumer.

For a normal good, the income elasticity is more than zero but less than one ( hence positive).

Normal goods experience a high preference rate when their prices are low. Lower prices of such items make it easier for people ( who may not earn much) to afford items that make their lifestyle healthy and comfortable.

What are Inferior Goods?

Inferior goods are directed to goods that have low demand when the consumer’s salary increases. Conversely, these goods experience a high demand when the buyer’s income rises.

For example-  when wages increase, the demand for such types of goods decreases.

There exist a negative correlation between the demand for normal goods and the income of the consumers. A positive increase in the salary of buyers leads to a negative decrease in the demand for inferior goods.

Here are a few examples of inferior goods:

  • Food & Drink- instant noodles, supermarket coffee, rice, etc.
  • Transportation- bus travel, low-end-use cars, etc.
  • Others- cigarettes, pirated items, discount store goods, etc.

The income elasticity is negative in the case of inferior goods. It indicates the magnitude of change in the demand of a good in response to a change in the income of a consumer.

For an inferior good, the income elasticity has a value of less than one ( hence negative). Inferior goods experience a quite low preference rate when their prices are low.

Lower prices of such items make them less desirable among the buyers.

There’s a special type of inferior good called Giffen goods. The latter was introduced by Sir Robert Giffen.

When the price of these goods increases, their demand also rises sharply.

Main Differences Between Normal and Inferior Goods

  1. The demand for normal goods increases with an increase in consumer’s income and the demand for inferior goods decreases with an increase in consumer’s income.
  2. Normal good experience a positive relationship between demands and income while on the other hand, inferior goods experience a negative relationship between income and demands
  3. Preference for normal goods rises when their prices drop whereas preference for inferior goods increases when their prices rise.
  4. Normal goods deal with positive income elasticity and inferior goods deal with negative income elasticity.
  5. Normal goods direct to cars branded clothes etc. Inferior goods direct to bicycles, coarse cloths, etc.

Conclusion

Economics is a subject of trade, agriculture, stocks, and goods. There are different types of goods that are explained in Economics.

These are luxury goods, normal goods, and inferior goods. Luxury goods are high maintenance items, normal goods are general items and inferior goods are cheap substituents.

Normal goods direct to goods that experience high demand when their buyer’s income sharply increases while on the other hand inferior goods direct to goods that experience low demand when their buyer’s income drops down.

The former has a positive correlation between income and demand whereas the latter has a negative correlation between income and demand.

References

  1. https://www.jstor.org/stable/136370
  2. https://link.springer.com/chapter/10.1007/978-3-662-04623-4_3
AskAnyDifference HomeClick here
Search for "Ask Any Difference" on Google. Rate this post!
[Total: 0]
One request?

I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments