Question

Distinguish between an inferior good and a normal good. Is a good which is inferior for one consumer also inferior for all the consumers? Explain.

Answer 1

Normal goods: Normal goods refer to those goods that share a positive relationship with income. That is, as the income increases, the demand for normal goods increases. On the other hand, as the income falls, the demand for normal goods falls. For example, clothing is a normal good. As income increases, the demand for clothing increases, and as income falls the demand for clothing falls.

Inferior goods: Inferior goods refer to those goods that share an inverse relationship with income. That is, as against normal goods, as the income increases, the demand for inferior goods falls and vice-versa. For example, coarse cereals are inferior goods. As the income increases, the consumer reduces its demand for coarse cereals and instead shifts its demand towards superior quality cereals. On the other hand, as the income falls, the consumer increases the demand for coarse cereals.

A good inferior to one consumer may not be inferior for other consumer. A good can be normal or inferior depending on the level of consumer’s income. For instance, at a very low level of income, coarse cereals may be a normal good. However, for higher income level, ceteris paribus, coarse cereals will be an inferior good because with an increase in income, a consumer will reduce his/her consumption of inferior cereals and it will be substituted by superior cereals.

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