when the price of a product increases relative to other similar products consumers will tend to demand less of that product and increase their demand for the similar product as a substitute 
normal goods vs inferior goodsnormal goods are those whose demand increases as people s incomes and purchasing power rise a normal good is defined as having an income elasticity of demand coefficient that is positive but less than one for normal goods the income effect and the substitution effect both work in the same direction a decrease in the relative price of the good will increase quantity demanded both because the good is now cheaper than substitute goods and because the lower price means that consumers have a greater total purchasing power and can increase their overall consumption inferior goods are goods for which demand actually declines as consumers real incomes rise or rises as incomes fall this occurs when a good has more costly substitutes that see an increase in demand as the economy improves for inferior goods the income elasticity of demand is negative and the income and substitution effects work in opposite directions an increase in the inferior good s price means that consumers will want to purchase other substitute goods instead but will also want to consume less of any other substitute normal goods because of their lower real income inferior goods tend to be goods that are viewed as lower quality but can get the job done for those on a tight budget for example generic bologna or coarse scratchy toilet paper consumers prefer a higher quality good but need a greater income to allow them to pay the premium price example of income effectconsider a consumer who on an average day buys a cheap cheese sandwich to eat for lunch at work but occasionally splurges on a luxurious hot dog if the price of a cheese sandwich increases relative to hotdogs it may make them feel like they cannot afford to splurge on a hotdog as often because the higher price of their everyday cheese sandwich decreases their real income in this situation the income effect dominates the substitution effect and the price increase raises demand for the cheese sandwich and reduces demand for a substitute normal good a hotdog even if the hotdog s price remains the same 