The key difference between normal goods and inferior goods is income. If the demand for goods increases with the increase in income, the product is known as a normal good. While if the demand of production decreases with the increase in income, the product is known as an inferior good.
Look at the examples of our daily life below to understand the real difference between the two:
- Today the price rate of chicken meat is 190/kg, whereas the price rate of mutton meat is 900/kg. Due to the huge difference in price, many low-income consumers are unable to buy mutton meat, while many high-income consumers have mutton meat daily in their meals.
- If we look around us, there are many cars of different makes, models, and years running around us. There are thousands of small cars such as Ford, Nissan, Holden, and many others owned by every second person in our surroundings but cars of high-end brands such as BMW, Audi, Lamborghini, and many other are rare to find around us. The main reason behind this is the price. Small cars are affordable for many low-income consumers, while big luxurious cars are unaffordable for them.
- Now if we talk about footwear, we will see thousands of people around us wearing Bata or Service shoes while there will be few people around us who are wearing original Nike or Adidas. Again the reason is income many low-income consumers are able to buy low-end brands, whereas high-income consumers can buy every high-end brand.
|Normal Goods||Inferior Goods|
|Definition||These are the type of goods for which demand increases when the income increases and conversely the demand decreases when the income decreases||These are the type of goods for which the demand decreases when the income increases|
|Elasticity||These goods have a positive income elasticity of demand but less than one||It has a negative income elasticity of demand that is less than zero|
|Relationship||It has a direct relationship with the income of the consumer||It has an indirect relationship with the income of the consumer|
|Example||Branded clothes and shoes, diamonds, luxurious cars, big houses, and many more||Low-quality products, cheaper cars, small houses, and many more|
What Are Normal Goods?
A normal good is a type of good for which demand increases when the consumer income increases. The demand shows a direct and elastic relationship between income and demand for the good. In other words, changes in income will positively change the demand of the consumer.
For example, when your income was lower, you bought an Android phone because the brand was cheap and affordable for you. After some time, you got a new job with 20% rise in your monthly income now at this time you decide to buy a new iPhone that you have been waiting to purchase for a long time. It only becomes possible due to the increase in your income accordingly now iPhone is your normal good.
It is important to remember that normal goods are not necessarily better in quality than inferior goods. There is no”better” or”worst” when comparing normal versus inferior goods. It is merely a matter of consumer preference, demand, and behavior. It can often be monetarily wise to purchase inferior goods, but other times, it can be preferable to purchase normal goods.
Example of Normal Goods
- All the luxury goods such as Lamborghini, diamonds, organic food, designer perfumes, clothes, and shoes because when there is an increase in your monthly income, you can easily afford to pay for the upgrade in your social status.
- Vacations in different countries and islands twice or once a year and doing other leisure activities such as skydiving, hiking, trekking, and many others. Because when your income is high, you can afford to take off from work, bear the travel expenses, and hotel costs.
- Taxis and ride-hailing services like Uber and Careem because when you have more income, you can switch from crowded public transportation to cabs and other luxurious modes of transportation.
- Higher Education in top universities.
- Dining in high-end restaurants.
What Are Inferior Goods?
An inferior good is a type of good for which demand decreases when the consumer income increases. The demand shows an indirect and negative elastic relationship between income and demand for the good. In other words, changes in income will negatively change the demand of the consumer.
There are many examples of inferior goods in our daily life. A number of us may be more familiar with many of the everyday inferior goods we come into contact with. For example,
- Instant noodles
- Canned goods
- Frozen food
- Public transportation
- Artificial jewelry,
- Local clothes, shoes, and many other goods
When people have lower incomes, they are more likely to buy these kinds of products. But when their incomes increase, they often give up the inferior goods for more expensive items.
The demand for inferior goods is mainly dictated by consumer behavior. Usually, the need for inferior goods is primarily driven by people with lower incomes or when there is a reduction in the economy. But that is not always the case. Some people may not change their preferences, and they continue to purchase inferior goods.
Consider a consumer who gets a raise from an employer. Even with the rise in income, she may continue to buy McDonald’s coffee because she prefers it over Starbucks, or she may find a no-name clothing piece better than the more expensive branded clothes. In this case, it is just a matter of personal preference.
Inferior goods are not always the same in different parts of the world. For example, something as common as fast food may be considered an inferior good in the USA, but it may be deemed a normal good for people in developing nations.
- Those goods whose demand increases with the increase in the consumer’s income are known as normal goods while those goods whose demand decreases with the increase in the consumer’s income are known as inferior goods.
- Normal goods show a positive income elasticity of demand but less than one, while inferior goods show a negative income elasticity of demand that is less than zero.
- Normal good has a direct relationship with the income of the consumer while inferior good has an indirect relationship with the income of the consumer.
It is important to understand that the increase or decrease in demand for normal or inferior goods does not always depend on the status of income and sometimes it is the preference of the consumer who decides whether he wants to buy a normal good or an inferior good.