Inferior Good

Published Feb 7, 2020

Definition of Inferior Good

An inferior good is a good for which, all other things equal, an increase in income leads to a decrease in demand and vice versa. That means when people earn more money, they buy less of that good and when they earn less, they buy more of it. Hence, inferior goods are considered to be the opposite of normal goods.

Example

A common example of inferior goods is instant noodles. To illustrate this, meet Joe, a young college student. Like many of his fellow students, Joe doesn’t have a regular income yet. However, he has to pay for tuition and his other living expenses all by himself. As a result, Joe doesn’t have a lot of money and cannot afford to buy expensive food. Instead, he often eats instant noodles, because they are inexpensive but nutritious. Thus, Joe’s demand for instant noodles is high.

However, once Joe graduates and finds a job, his income increases substantially. Now he can afford to spend more money on food and drinks. That means he can substitute his instant noodle diet with a more expensive but well-balanced, healthier diet. Thus, Joe’s demand for instant noodles decreases as his income rises. Similar examples of inferior goods include fast-food restaurants, public transport, cheap motels, etc.

Why Inferior Goods Matters

Simply put, inferior goods are the opposite of normal goods. In most cases, they are affordable substitutes for more expensive goods or services. Thus, they are closely related to the socio-economic status of their consumers. That means they are especially relevant for people in low-income brackets. Despite that, however, it is important to note that the term inferior good relates to the affordability of a good or service and not necessarily its quality. Therefore, the reason why demand for inferior goods decreases as income increases does not usually have anything to do with the quality of the product but with other aspects of consumer behavior. As a matter of fact, in many cases, inferior goods are of the same (or even better) quality than their more expensive substitutes.