what is an inferior good 
an inferior good is an economic term that describes a good whose demand drops when people s incomes rise these goods fall out of favor as incomes and the economy improve as consumers begin buying more costly substitutes instead investopedia dennis madambaunderstanding inferior goodsin economics the demand for inferior goods decreases as income increases or the economy improves when this happens consumers will be more willing to spend on more costly substitutes some of the reasons behind this shift may include quality or a change to a consumer s socioeconomic status inferior goods which are the opposite of normal goods are anything a consumer would demand less of if they had a higher level of real income they may also be associated with those who typically fall into a lower socioeconomic class conversely the demand for inferior goods increases when incomes fall or the economy contracts when this happens inferior goods become a more affordable substitute for more expensive goods the term inferior good refers to affordability rather than quality even though some inferior goods may be of lower quality inferior good examplesthere are many examples of inferior goods when people have less money they tend to buy these kinds of products but when their incomes rise they often give these up for more expensive items groceries are among the most common examples of inferior products because food is a necessity that must always be acquired however the level at which consumers by food may vary as opposed to eating a steak for dinner an individual may opt for an inferior product such as canned meat or frozen food in addition the way individuals consume food may be classified differently individuals may be less likely to eat out especially at fancier restaurants in favor of inferior methods of having food prepared such as preparing the meal at home on their own one method is simply a superior substitute for the other we can also turn to transportation as an example of an inferior good when people s incomes are low they may opt to ride public transport when their incomes rise they may stop riding the bus and instead take taxis or even buy cars in addition buying a vehicle may be classified by different tiers as a used honda may be considered inferior to a new tesla along with everyday transportation many aspects of travel may be considered a superior or inferior goods consider the hotel you may stay at based on how your personal finances are doing you may also choose to attend different entertainment events or fly first class as opposed to opting to cheaper inferior travel options a mcdonald s coffee may be an inferior good compared to a starbucks coffee when a consumer s income drops they may substitute their daily starbucks java for the more affordable mcdonald s brew on the other hand when a consumer s income rises they may substitute their mcdonald s coffee for the more expensive starbucks coffee other examples of an inferior good are no name grocery store products such as cereal or peanut butter consumers may use these cheaper generic brand products when their incomes are lower and make the switch to name brand products when their incomes increase grocery store brand products provide an insightful example of how inferior goods are not necessarily of lower quality many of these goods come from the same product line as the more expensive name brand goods inferior goods and consumer behaviordemand for inferior goods is commonly dictated by consumer behavior typically demand for inferior goods is mainly driven by people with lower incomes or when there s a contraction in the economy but that isn t always the case some customers may not change their behavior and continue to purchase inferior goods consider a consumer who gets a raise from their employer despite the rise in income they may continue to buy mcdonald s coffee because they prefer it over starbucks brew or they may find a no name grocery product better than the more expensive name brand counterpart in this case it s just a matter of personal preference inferior goods aren t always the same in different parts of the world for example something as simple as fast food may be considered an inferior good in the u s but it may be deemed a normal good for people in developing nations a normal good is one whose demand increases when people s incomes start to increase giving it a positive income elasticity of demand inferior goods are associated with a negative income elasticity while normal goods are related to a positive income elasticity other types of goodsgiffen goods are rare forms of inferior goods that have no ready substitute or alternative such as bread rice and potatoes the only difference between giffen goods and traditional inferior goods is that demand for the former increases even when their prices rise regardless of a consumer s income many giffen goods are considered staples especially in areas where people live in a lower socioeconomic class when the prices of giffen goods increase consumers have no choice but to spend a larger amount of money on them so they may spend more money on rice because that s all they can afford to buy even if the price keeps rising products such as meat on the other hand become luxuries as they are far too unaffordable and out of reach an inferior good is the opposite of a normal good normal goods experience an increase in demand when incomes increase normal goods are also called necessary goods an example is organic bananas if a consumer s income is low they may buy regular bananas if their incomes rise and they have a few extra dollars to spend each month they may choose to buy organic bananas other examples include clothing and water luxury goods are the third category they are not deemed essentials or necessities to live these goods are highly desired and can be purchased when a consumer s income rises in other words the ability to purchase luxury goods is dependent on a consumer s wealth or assets luxury items include cleaning and cooking services handbags and luggage certain automobiles and haute couture another differing type of good is a veblen good a veblen good is an item whose increase in price may actually result in higher sales these types of goods are often a subset of a luxury good and this type of good often defies many traditional concepts of economics for example consider a piece of artwork that sells for 100 should the artwork actually be valued at 1 million theory holds that more investors would be interest as there is greater potential value 