Normal vs. Inferior Goods: How They're Different (and Similar)

Inferior goods are the types of products people typically purchase when their income is low. They generally represent the cheapest options for meeting a consumer's needs, so they are satisfactory options for consumers who do not have a lot of money. These products are typically the lowest quality products available, purchased only out of economic necessity.

• Consumers who consistently maintain a low-income level tend to purchase inferior goods most or all of the time.
• When people who ordinarily make more money experience a loss in income, they will shift to purchasing inferior goods out of necessity until their income rises.

Demand for inferior goods has an inverse relationship with income. As income decreases, demand for inferior goods increases. Think of it this way: When money is tight, consumers seek the cheapest possible products. The reverse is also true. As income increases, demand for inferior goods decreases. As a consumer's access to money increases, they seek alternatives to inferior goods.

When a person's income rises, the individual generally stops buying inferior goods, switching instead to normal goods. These items cost more than inferior goods and are generally of higher quality. When consumers have enough money to purchase normal goods, they will choose these items over inferior goods.

• When faced with choosing between a normal good vs. inferior good, those with sufficient income will generally opt to buy a normal good.
• When individuals who typically have a low income come into extra money, such as a raise, a bonus or a win (via lottery or casino, for example), they may treat themselves by purchasing normal goods.

Demand for normal goods tends to have a direct relationship with income. Demand for normal goods increases as income increases. However, if a consumer's income goes down (such as due to a job loss or inability to work due to illness or injury), then the person's demand for normal goods will also go down. They will seek inferior goods instead.

Review the chart below to get a sense of how income impacts the demand for normal goods and inferior goods.

Consider the difference between a normal good vs. inferior good by reviewing some examples.

Not all goods are normal goods or inferior goods. Some are items that people tend to purchase regardless of their financial situation, while others are luxury items purchased only by those with a very high income.

Demand for some products does not fluctuate based on income. These items, called Giffen goods, are staple items that most people purchase on a regular basis. There are few or no alternatives, with very little variability in price or quality. As a result, demand stays stable regardless of income. Examples include things like milk, bread, butter, flour, and sugar. People of all income levels tend to purchase and use Giffen goods. Demand for such items is constant.

The most affluent people tend to prefer luxury goods, such as high-end cars, designer apparel and original art. Demand for luxury goods is closely linked to income. People generally purchase these when they have a high level of disposable income. High-income consumers often purchase luxury items. People who ordinarily purchase normal or inferior goods may sometimes splurge on an occasional luxury item as a treat, or as a result of coming into an unexpected financial windfall. During difficult economic times, demand for luxury goods will plummet.

Now that you understand the difference between a normal good vs. inferior good, consider further exploring key economic concepts. Start by exploring some basic economic terms and what they mean.