Inferior good

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In consumer theory, an inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. Inferiority, in this sense, is an observable fact relating to affordability rather than a statement about the quality of the good. As a rule, too much of a good thing 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 bologna, hamburger, mass-market beer, frozen dinners, and canned goods are additional examples of inferior goods. As incomes rise, one tends to purchase more expensive foods. Likewise, goods and services used by poor people 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.

Some inferior goods are so consistent that they can be seen as economic indicators. One such is instant noodles, where an early 2005 increase in the Thai "Mama Noodles Index" (the number of the popular Mama-brand instant noodles sold in that country) was seen as a sign of weakness after about ten years of stability.

Others are very inconsistent across geographic regions or cultures. The potato, for example, generally conforms to the demand function of an inferior good in the Andean region where the crop originated. People of higher incomes and/or those who have migrated to coastal areas are more likely to prefer other staples such as rice or wheat products as they can afford them. However, in several countries of Asia, such as Bangladesh, potato is not an inferior good, but rather a relatively expensive source of calories and a high-prestige food, especially when eaten in the form of "French fries" by urban elites.^[1]

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.

Recently, there has been some interest in cataloging and identifying inferior goods in the United States. One such project, developed by economist.com, seeks to document characteristics that would identify goods as inferior. In 1997, several Michigan scholars from Western Michigan University identified many commonplace grocery store goods as inferior. Some of the goods identified as inferior goods are:

Tahitian Treat: A low-cost carbonated fruit punch beverage.
Thirst Rockers: A Kroger brand of imitation juice beverage in gallon milk jugs.
"Valu-Time" Ice Cream: Ice cream sold in 2.5 gallon plastic pails at grocery stores, with an emphasis on value and quantity as opposed to quality or advertising.
Cosmic Brownies: Low cost cakes resembling small browies manufactured by the Little Debbies company.
Faygo Brand pop: A low cost non-advertised soda pop manufactured in Detroit, MI.

[edit] Giffen goods

Main article: Giffen good

A special type of inferior good may exist known as the Giffen good, which would disobey the "law of demand". Quite simply, when the price of a Giffen Good decreases, the demand for that good decreases. 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.