Inferior Good in Economics: Definition & Examples

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  • 0:00 Understanding Inferior Goods
  • 2:00 Examples Of Inferior Good
  • 3:45 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Learn about inferior goods and discover how they differ from normal goods. See some everyday inferior goods that you may have in your apartment or house.

Understanding Inferior Goods

Have you ever bought a cheap television? Can you locate any off-brand toilet paper, tissues, or paper towels in your kitchen or bathroom? How about generic cereal or potato chips, or maybe a frozen pizza in the freezer? If you answered 'yes' to any of these questions, you're not only very similar to many other current-day consumers, but your house is likely full of economic inferior goods!

An inferior good is a type of good that decreases in demand when income rises. Conversely, demand for these goods will increase when income falls. Can you think of any goods you would use less or change if you suddenly got a huge raise? Maybe you'd stop buying off-brand peanut butter or cheap frozen dinners. These would be inferior goods.

Inferior Goods vs. Normal Goods

In contrast to inferior goods are normal goods. A normal good is any good that increases in demand when income increases. With more income, you may find that you shop less for clothing at discount stores (that offer more inferior goods) and make more trips to department stores (that offer more normal goods). Normal goods may be nice shoes or name-brand clothing. They could also be organic foods or top-brand electronics.

It is important to note that inferior relates to the behavior and affordability of a good, and does not necessarily mean that an inferior good lacks quality or is a bad purchase decision. Inferior goods can be a financially smart purchase for many people. When you're trying to live on a budget, inferior goods can be a great way to lower costs and still get the job done. For example, if your income is low but you still require a cup of coffee every morning, buying a large container of basic coffee (inferior) may be a better solution than a more expensive bag of Starbucks (normal). When your income rises and you can afford other varieties and choices, your use of inferior goods will most likely decrease and consumption of normal goods will increase.

Examples of Inferior Goods

Cheaper cars - In the earlier years of most people's lives when income is lower, they often buy cheaper cars. They simply can't afford the luxury brands. I'm sure you have a close friend or parent who loves to tell you the story about the first cheap car they ever owned! At one point, they purchased an inferior good to satisfy their transportation needs. If that parent or friend's income has risen over the years, it's likely that they don't drive that type of car anymore. As promotions and pay increases add up at work, these individuals will increase their demand for more normal or luxury vehicles.

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