Difference Between Normal Goods and Inferior Goods
The primary difference between normal goods and inferior goods is their relationship with the income of the buyer or consumer. Normal goods hold a direct relationship with consumer income, which means that the demand for these goods increases with an increase in the income of the buyer. 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 bicycle is an inferior good (purchased when income is low), and the car is a normal good (purchased when income is higher).
What are Normal Goods?
- A normal good is a product that attracts an increase in demand with an increase in the buyer’s income. Imagine you’re a poor student, so you buy your lunch from the cheap food truck outside your college.
- Once you graduate and land your first corporate job, you may decide to start eating lunch at a high-end restaurant close to your office.
- Now, imagine that the economy goes into recession and you lose your job. You’ll probably stop buying lunch from the high-end restaurant when you’re no longer earning a steady salary because you’ll be living on your savings. As such, you wouldn’t want to spend more than you absolutely 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 some other examples of normal goods.
What are Inferior Goods?
- An inferior good is a product that witnesses a fall in demand as the consumer’s income goes up. In the example above, when you lose your job during a recession, you’d probably go back 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 landed 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. Examples of inferior goods include coarse rice, cheaper cereals, coarse cloth, toned milk, flip phones, etc.
- When the Venezuelan economy collapsed in 2013 and hyperinflationHyperinflationHyperinflation is an accelerated level of inflation that tends to quickly destroy the actual value of the local currency since there is a rise in the cost of all products and services. It forces people to lower their holdings in that particular currency to participate in stable foreign currencies. 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. This is because yuca is an inferior good, the demand for which increases in times of low incomes and economic hardship.
- It is important to note that some inferior goods become Giffen goods when their demand does not fall despite the increased price. For instance, a family consumes five bags of rice every month as it is cheap in price. With the remaining money, they buy a box of chocolates which is a luxury item for them. 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 fives bags of rice every day. Since people cannot find alternatives for such inferior goods, they continue to pay for them despite the price rise. As such, the demand for such an inferior good continues to rise despite the price increase.
Normal Goods vs Inferior Goods Infographics
Comparative Table – Normal Goods vs Inferior Goods
|Particulars||Normal Goods||Inferior Goods|
|Income Effect||The demand for normal goods rises when income is higher and falls when income is lower.||The demand for inferior goods rises when income is lower and falls with an increase in income.|
|Socioeconomic Situation||Usually, normal goods are in higher demand during times of economic boom.||Usually, inferior goods are in higher demand during times of economic recessionEconomic RecessionEconomic recession is when economic activity is stagnant, and there is contraction in the business cycle, over-supply of goods compared to its demand, and a higher unemployment rate resulting in lower household savings and lower expense, inflation, higher interest rate and economic crisis due to higher fiscal deficit..|
|Preferred When||Incomes in society are rising.||Incomes in society are falling.|
|Status||Normal goods are associated with high economic status and can be purchased as a status symbol.||Inferior goods do not function as status symbols and are usually purchased due to necessity.|
|Examples||Branded clothes, full-cream milk, cars, flat-screen TV.||Coarse cloth, toned milk, bicycles, black & white TV.|
This 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 –