Inferior good
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In consumer theory, an inferior good is a good that decreases in demand when the consumer's income rises, unlike normal goods, for which the opposite is observed. Inferiority, in this sense, is an observable fact rather than a statement about the quality of the good. As a rule, surfeit is easily achieved with such goods, and as more costly substitutes that offer more pleasure or at least variety become available, the use of the inferior goods diminishes.
Inter-city bus service is an example of an inferior good. This form of transportation is cheaper than air or rail travel, but is more time-consuming. When money is constricted, traveling by bus becomes more palatable, but when money is more abundant than time, more rapid transport is preferred.
Inexpensive foods like potatoes, hamburger, mass-market beer, frozen dinners, and canned goods are additional examples of inferior goods. As a person's income rises one tends purchases to more expensive foods. Likewise, objects heavily used by poor people (televisions) and related services (television repair) for which richer people have alternatives exemplify inferior goods. As a rule, used and obsolete goods (but not antiques!) marketed to persons of low income as closeouts are inferior goods at the time even if they had earlier been normal goods or even luxury goods.
Depending on consumer or market indifference curves, the amount of a good bought can either increase, decrease, or stay the same when income increases. In the diagram below, good Y is a normal good since the amount purchased increases from Y1 to Y2 as the budget constraint shifts from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases.
[edit] Giffen goods
A special type of inferior good may exist known as the Giffen good, which would disobey the "law of demand". This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope upward, indicating positive elasticity.
| Types of goods
public good - private good - common good - common-pool resource - club good - anti-rival goods durable good - non-durable good - intermediate good (producer good) - final good - consumer good - capital good. |
