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Inferior Goods
In economics, inferior goods are goods for which demand decreases as consumer income increases, and conversely, demand increases when consumer income decreases. In other words, people tend to buy less of these goods when they can afford better alternatives, and more when their income is lower.
Key Characteristics of Inferior Goods:
- Income Effect: As consumers' income rises, they shift their consumption away from inferior goods to more expensive, higher-quality alternatives (known as normal or superior goods). When income falls, they switch back to inferior goods because they are more affordable.
- Substitution: Inferior goods often have cheaper substitutes for more desirable or higher-quality products.
- Negative Income Elasticity of Demand: Inferior goods have a negative income elasticity of demand, meaning that as income rises, demand falls, and as income falls, demand rises.
Examples of Inferior Goods:
- Instant noodles: As people's income increases, they may switch from buying instant noodles to higher-quality fresh meals or dining out. When income is lower, instant noodles might be a more affordable option.
- Public transportation: As income increases, people may choose to buy cars or use ride-hailing services instead of relying on public transportation. When income decreases, they might use public transit more frequently.
- Generic or store-brand products: Consumers may buy generic or low-cost brands when their income is tight but switch to premium brands as their income rises.
Inferior Goods vs. Normal Goods:
- Inferior goods: Demand decreases as income increases.
- Normal goods: Demand increases as income increases (e.g., organic food, luxury items).
In summary, inferior goods are those that people buy more of when their income is lower and less of when their income is higher, as they tend to switch to higher-quality substitutes when they can afford them.
See also
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IB Economics - Income Elasticity of Demand
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1.2.3 Income Elasticity of Demand (Edexcel A-Level Economics Teaching PowerPoint)
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4.1.3.2 Income Elasticity of Demand (AQA A-Level Economics Teaching PowerPoint)
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