The subject of Economics introduces us to the concept of different types of goods. These are of three types: 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 focus on Normal goods and Inferior goods.
- Normal goods experience increased demand as income rises, while inferior goods see demand decrease with higher income levels.
- Luxury items are an example of normal goods, whereas lower-quality, cheaper products represent inferior goods.
- The distinction between normal and inferior goods is important for understanding consumer behavior and economic trends.
Normal vs Inferior Goods
A normal good is a product for which demand increases as income levels increase. An inferior good is a product for which demand decreases as income increases. Inferior goods are cheaper or lower quality products to make ends meet. Compared to normal goods that are priced according to their quality.
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- are 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- are supermarket coffee, cheese, and macaroni.
|Parameters of Comparison||Normal Goods||Inferior Goods|
|Definition||Goods 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 Income||As the consumer’s income increases the demand increases hence positive correlation.||As the consumer’s income increases the demand decrease hence negative correlation.|
|Income Elasticity||Income elasticity is positive in this case.||Income elasticity is negative herein.|
|Preferred When||Normal goods are preferred when their cost prices are low.||Inferior goods are preferred when their cost prices are high.|
|Examples||Cars, 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.
A positive correlation exists 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 jewellery, 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 for a good in response to a change in a consumer’s income.
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.
A negative correlation exists 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 for a good in response to a change in a consumer’s income.
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 goods 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
- The demand for normal goods increases with an increase in the consumer’s income, and the demand for inferior goods decreases with an increase in the consumer’s income.
- Normal goods experience a positive relationship between demands and income, while on the other hand, inferior goods experience a negative relationship between income and demands.
- Preference for normal goods rises when prices drop, whereas preference for inferior goods increases when prices rise.
- Normal goods deal with positive income elasticity, and inferior goods deal with negative income elasticity.
- Normal goods direct to cars branded clothes etc. Inferior goods direct to bicycles, coarse clothes, etc.
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 ♥️
Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.