Normal and Inferior Goods

Introduction

Depending on the choice of customers to buy products when their prices go up or down, goods are categorized into two types - Normal and Inferior goods. Identifying the goods as normal or inferior helps companies judge the forthcoming demand and this may help them set strategic decisions according to the nature of the products.

In general, there are many commonalities between normal and inferior goods. However, there are some distinct differences too.

What are Normal goods?

Normal goods are products whose demand in the market increases with the rising income levels of the customers. In other words, when wages increase, customers prefer to buy more of the normal goods. Similarly, when the wages of customers go down, the demand for normal products goes down.

Another way of illustrating normal goods is that when wages rise, people tend to buy more normal goods whereas when wages go down, they tend to buy less of normal goods.

We may also say that normal goods have a positive elasticity of demand and income. This means that when we draw a graph of demand and income, they move in the same direction when prices go up or down. When income increases, people tend to buy more branded products, and they tend to eat out in restaurants more, and this causes the demand for normal goods to spike. In other words, in the case of normal goods, the demand will always show a proportional rise along with the increase of income of the customers.

Examples of Normal Goods

• Eating outside − People’s behavior toward eating outside may change when they have more disposable income. For example, they may prefer a steakhouse instead of a drive-thru restaurant. People may also engage in four-course dining at a local restaurant instead of a chain restaurant.

• Grocery Items − People may switch from inferior to normal grocery goods when their income increases. They may buy more branded items. Also, they may replace fresh herbs and frozen foods with organic vegetables and fruit. They may also buy more dry herbs than seasonings. Another behavior that is common among buyers when their income increases are to buy more tea leaves and coffee beans instead of tea bags and ground coffee, respectively.

• Travel − People with greater disposable income usually tend to spend more while traveling. For example, they may travel by flight than by railway. While booking their tickets, they choose the costlier options, such as flying first class instead of economy. People may also stay in five-star or luxury hotels when their income is high.

• Transportation − When there is a high disposable income, people tend to use personal vehicles, such as luxury automobiles and sports cars to ply from one place to another. They may also reduce moving in buses and public transport. Another cheaper way that people with higher disposable income tend to deter is traveling by subway.

• Branded Items − People often select branded items when their disposable income is high. For example, they may buy branded shoes, clothes, and other items while diverting from generic brands. Name-brand cleaning supplies may also replace generic ones while individuals may also choose branded decor items and furniture.

What are Inferior goods?

Inferior goods show the opposite characteristics of normal goods. They are not inferior in quality. However, when the income of customers increases, they tend to buy less of inferior goods. That is similar to saying that when the income of customers rises they prefer to buy fewer inferior goods.

Inferior goods do not always have bad sales conditions. When unemployment is high or when the income of customers goes down, they prefer to buy more of inferior goods. Therefore, we may say that, in contrast to normal goods which show an increase in demand with rising income, inferior goods show a slowdown in demand and sales as the wages of buyers go up.

Inferior goods usually have negative elasticity with demand and income. In other words, the changes in income and demand move in opposite directions in the case of inferior goods. For example, people would buy fewer expensive items when their income is low. These items, therefore, are included in the inferior goods category.

It is important to note that normal and inferior goods do not refer to the quality of products. The quality of inferior goods and normal goods may be the same when compared to each other. Normal and inferior goods are categories that are related to consumer purchase decisions in relation to the rise or fall in income. The quality of products is not a relevant issue when deciding whether a product is an inferior or normal good.

Examples of Inferior Goods

• Groceries − A pretty common example of an inferior grocery item is store-bought food. Other examples may include frozen and canned food items, instant noodles, canned meat, and other boxed items that may replace costlier name-brand foods.

• Travel − People with lower disposable income often travel by railway instead of flying. Even if they use flight to travel, they may buy economy tickets instead of first-class ones. They may also choose to stay in motels instead of luxury accommodations.

• Transport − When incomes go down, individuals may prefer to transit by public vehicles, such as buses and trains instead of using personal vehicles. They may also choose to transit using subways or book bicycles to move from one place to another.

• Generic brands − People may tend to choose generic brands, such as non-name- brand foods, shoes, clothes, beauty products, and cleaning products over name- brand items when their disposable income is low.

Difference between Normal and Inferior goods

As is obvious from the above discussion, normal and inferior goods are opposite to each other in terms of utility. When an individual’s income increases, he prefers to derive more utility from a product. In such a case, the individual switches from inferior to normal goods. Similarly, when there is a slowdown in the economy and unemployment increases, people switch from normal to inferior goods. The following table shows the differences between the normal and inferior goods.

Particulars	Normal Goods	Inferior Goods
Demand	The demand for normal goods rises with an increase in income.	Inferior goods demand goes down with increasing income.
Income elasticity	Normal goods have a positive elastic relation with the price.	Inferior goods’ relation with price elasticity is negative.
Differences in price	Consumers tend to prefer normal goods when prices are low.	Inferior goods are preferred by consumers when prices are high.
Relation Type	Normal goods have a proportional relation with price changes.	Inferior goods have a negative relation with increasing prices.

Conclusion

It is important for businesses to know whether their products are normal or inferior goods to adjudge the actual demand in the markets. This helps them produce the optimum number of products which saves wastage of resources. By knowing whether a product is normal or inferior, therefore, companies may provide their products in given markets to earn the maximum revenues. That is why knowing about normal and inferior goods is important.

FAQs

Qns 1. What is the difference in terms of demand between normal and inferior goods?

Ans. The difference between normal and inferior goods is that the demand for normal goods increases with increasing income while in the case of inferior goods, it reduces with increasing income.

Qns 2. Do the term inferior goods refer to inferior quality goods?

Ans. No. An inferior good is a term that has nothing to do with the quality of goods. It refers to the goods the demand for which decreases with increasing income.

Qns 3. Luxury items fall into which group of products - normal or inferior goods?

Ans. Luxury items are normal goods because their demand goes up with increasing income.