Normal Goods vs Inferior Goods

The primary difference between normal goods and inferior goods is their relationship with the income of the buyer or consumer. Normal goods directly correlate with consumer income, which means that the demand for these goods increases with the buyer's earnings. On the other hand, inferior goods have an inverse relationship with consumer income, meaning that their demand decreases when they earn a higher income.

Let us understand the difference between normal goods and inferior goods with a simple example. George rides a bicycle to work when his income is low but buys a car as his income increases. Hence, in this instance, the bike is an inferior good (purchased when income is lower), and the vehicle is a normal good (purchased when income is higher).

• A normal good is a product that attracts an increase in demand and increases the buyer's income. For example, suppose you are a poor student. So, you buy your lunch from the cheap food truck outside your college.
• Once you graduate and fetch your first corporate job, you might decide to start eating lunch at a high-end restaurant close to your office.
• Imagine that the economy goes into recession, and you lose your job. You will probably stop buying lunch from the high-end restaurant when you no longer earn a steady salary because you will be living on your savings. You would not want to spend more than you need to.
• As this example clearly illustrates, the demand for normal goods (high-end restaurant food) increases when your income rises and decreases when your income falls. Organic food, branded clothes, cars, music systems, and smartphones are other normal goods examples.

• An inferior good is a product that witnesses a fall in demand as the consumer's income increases. In the example above, when you lose your job during a recession, you would probably return to buying lunch from food trucks because you no longer want to spend an unnecessary amount of money at a high-end restaurant. In this context, the food truck lunch is an example of an inferior good.
• So, the demand for the food truck lunches was high when you were a poor student, decreased when you got a high-paying job and increased again when you lost your job. The more money you earn, the less your demand for this inferior good, and vice versa. Inferior goods include coarse rice, cheaper cereals, coarse cloth, toned milk, flip phones, etc.
• When the Venezuelan economy collapsed in 2013 and hyperinflation hit the country hard, the demand for potatoes decreased, and the demand for cassava (or yuca), a cheaper root vegetable, increased. Even the McDonald's outlets in the country replaced their traditional potato fries with yuca fries. Yuca is an inferior good, the demand for which rises in times of low incomes and economic hardship.
• It is important to note that some inferior goods become Giffen goods when demand does not fall despite the increased price. For instance, a family consumes five bags of rice every month as it is cheap. They buy a box of chocolates with the remaining money, a luxury item. However, their brand of rice undergoes price rice.
  They find it difficult to cut down on its consumption since it is a staple for the family and cannot afford the alternatives. Consequently, they compensate by not purchasing the box of chocolates anymore. With the saved amount, they continue to buy five bags of rice every day. Since people cannot find alternatives for such inferior goods, they continue to pay for them despite the price rise. Therefore, the demand for such a bad good continues to rise despite the price increase.

This article has been a guide to normal goods vs. inferior goods. Here, we discuss the top 5 differences between normal goods and inferior goods along with infographics. You may also have a look at the following useful articles: -

• Living Wage vs Minimum Wage
• Fast-Moving Consumer Goods
• Consumer Goods vs Capital Goods
• Veblen Goods