Inferior goods

The group of inferior goods is made up of all those products that serve to satisfy basic needs . They are low-cost products and are intended for low-income consumers . These assets have the singular characteristic that they break with the Normal Law of Demand . This means that, as the purchasing power of the consumer increases, the purchase of these products decreases. In economic terms, inferior goods represent the opposite of what is known as normal goods .

Which are?

The definition of inferior goods refers to all those material goods intended to satisfy basic needs of low-income people.

They differ from normal goods because they have a particularity linked to the demand curve . As consumer income increases , consumption of inferior goods decreases. For example, bread, potatoes, rice and others constitute inferior goods when the consumer purchases them, leaving aside other higher-cost goods such as meats, fruits, etc. As the consumer’s income increases, he will buy fewer potatoes and will begin to purchase other goods such as meat, dairy products, etc.

There is a special type of inferior goods known as Giffen . They are those that, despite suffering price increases, their demand remains high. These are extremely basic goods that the consumer cannot give up.

Among this type of goods, we can mention bread, potatoes, cheap dry pasta, rice.

features

The main characteristic of inferior goods, and what differentiates it from other consumer goods, is that their demand decreases as the consumer’s purchasing power increases .

This characteristic is not minor, since these goods contradict the standard demand curve for other types of goods.

Another characteristic, in this case, for the inferior Giffen goods, is that the increase in price of these goods does not decrease the demand.

Demand curve for inferior goods

The demand curve for the inferior goods called Giffen and for the non-Giffen, offer certain differences.

What can we observe in the demand curve for inferior non-Giffen goods?

• All inferior goods show their descending demand curve in relation to consumer income. The growth in demand is transferred, in these cases, to normal goods. When there is a decrease in the consumption of inferior goods, normal goods tend to show growth.
• When we set the demand curve relative to prices, inferior goods grow with rising prices . This is more noticeable in the inferior goods No Giffen, since we can classify them as very inferior.

Differences from normal goods

The main difference between inferior and normal goods lies in how the demand curve behaves in relation to the income of consumers.

For normal goods, demand grows as consumer income increases. On the contrary, in inferior goods an increase in income causes a decrease in demand.

Another difference between normal and inferior goods is established in relation to prices. Normal goods suffer a fall in demand if the price increases. In the case of inferior goods, an increase in prices does not cause a decrease in demand. Even in the case of inferior Giffen goods it is possible to register an increase in consumption in the face of an increase in prices.

Examples

These goods are made up of all those low-cost foods such as low-priced bread, rice, dry pasta. Low-income consumers choose these goods, leaving aside seasonal meats, fruits and vegetables.

Also in the apparel segment we can find inferior goods. Used clothing stores show a demand curve corresponding to this type of goods.