Inferior Good
What is Inferior Good?
An inferior good is a good for which demand decreases as consumers' income rises and increases as income falls.
Inferior goods have a negative relationship between income and demand. As consumers' incomes rise, they switch to more expensive substitutes, causing demand for the inferior good to fall. Examples include generic products or public transportation.
Inferior Good: a worked example
Track one household's weekly grocery choices. When its weekly income falls from $500 to $400, purchases of store-brand instant noodles rise from 12 packs to 15. The percentage change in quantity is (15 minus 12) / 12 = plus 25 percent. The percentage change in income is (400 minus 500) / 500 = negative 20 percent. Income elasticity of demand equals 25 / negative 20 = negative 1.25. The negative sign classifies noodles as an inferior good for this household. Run it forward and the logic holds: income recovers to $500, noodle purchases fall back to 12 packs, and if other households respond the same way market demand for noodles shifts left, lowering equilibrium price and quantity together. The magnitude matters too, since negative 1.25 means purchases respond more than proportionally to income, so an income drop swings this market hard.
The mistake students make with inferior good
Inferior does not mean poorly made. Students read the word as a quality judgment and label anything cheap inferior, but the classification rests entirely on the sign of income elasticity. A durable used bicycle can be inferior while a flimsy designer trinket is normal. The label is also buyer-specific and income-range-specific, so bus travel may be inferior for a household whose income doubles yet normal for one still choosing between walking and paying a fare. The other slip is shifting demand for inferior goods left when incomes fall, which reverses the definition.
Inferior Good questions
How do you know if a good is inferior?
Income elasticity of demand settles the question. Divide the percentage change in quantity demanded by the percentage change in income, and a negative result means the good is inferior. A household whose income drops 20 percent while its noodle purchases rise 25 percent produces negative 1.25, so noodles are inferior for that household. Normal goods return a positive value. The good's own price plays no part in this test, because only income is allowed to move.
What happens to demand for inferior goods in a recession?
Demand for inferior goods rises when incomes fall, so those demand curves shift right during a downturn. Households trading down to store brands, bus rides and repair services push those curves right, raising equilibrium price and quantity in each market, while demand for normal goods shifts left at the same moment. The pattern reverses once incomes recover, which is why sellers of inferior goods can look strong precisely when the broader economy is weak.
Can the same good be inferior for one person and normal for another?
Inferior status belongs to the buyer, not to the good, so the same item can be inferior for one household and normal for another. Canned soup may be inferior for a household with rising income that switches to fresh ingredients, yet normal for a household moving up from skipping meals. A single good can even change categories for one buyer as income climbs through different ranges, which is why the label always needs a stated income context.
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Related terms
Common comparisons
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