When it comes to goods, there are two types: normal and inferior. Normal goods are those that people want more of as their income rises, while inferior goods are the opposite – people want less of them as their income rises. This is an important distinction to understand because it can have a huge impact on how a company markets its products. Let’s take a closer look at each type of good.
What is Normal Good?
Normal goods are those that people purchase in greater quantities when their incomes rise and in smaller quantities when their incomes decline. Normal goods are a key concept in economics and are essential to understanding consumer behavior. Many necessary items, such as food and clothing, are normal goods. Normal goods also include luxuries, such as vacations and expensive cars. The demand for normal goods is determined by income, not price. This means that as income increases, people will buy more of the good, even if the price of the good remains the same. Conversely, as income declines, people will purchase less of the good, even if the price decreases. Normal goods are an important part of microeconomics and have a significant impact on the economy.
What is Inferior Good?
In economics, an inferior good is a good that sees a decrease in demand as income increases. Inferior goods are the opposite of normal goods, which see an increase in demand as income rises. A classic example of an inferior good is bus travel. As people’s incomes rise, they are more likely to purchase a car and forego public transportation. Inferior goods are generally cheaper than normal goods and are often necessities. In contrast, normal goods are generally luxuries that people purchase as their incomes allows. Understanding inferior and normal goods is essential for both consumers and businesses. For consumers, it helps to understand what types of products will see a decrease in demand as their income rises. For businesses, understanding which products are inferior or normal can help to make marketing and pricing decisions.
Difference between Normal and Inferior Goods
- Normal goods are those that consumers demand more of when their incomes rise, and less of when their incomes fall. Inferior goods, on the other hand, are those that consumers demand less of when their incomes rise, and more of when their incomes fall. Normal goods are typically luxury items or items that improve one’s quality of life, while inferior goods are typically necessities. Luxury items include vacations, designer clothes, and fancy cars. Necessities include food, shelter, and clothing. Normal goods tend to be more expensive than inferior goods, as they are not essential to survival.
- When income levels are high, people can afford to buy Normal Goods. When income levels are low, people cut back on Normal Goods and purchase Inferior Goods instead. Inferior Goods examples include generic brands, ramen noodles, and used clothes. Although Normal Goods are often seen as better than Inferior Goods, both have a place in the market.
- Normal Goods provide variety and choice for consumers, while Inferior Goods provide basic needs at a lower cost. Different people have different preferences for Normal Goods versus Inferior Goods based on their personal circumstances. There is no correct answer as to which type of good is better – it depends on the individual consumer.
Conclusion
The difference between normal and inferior goods is an important distinction to make when trying to understand how people purchase products. Normal goods are those that consumers generally want more of as their income rises, while inferior goods are those that people tend to buy less of as they earn more money. By understanding the difference between these types of products, businesses can create marketing plans that cater to each type of good in order to increase sales.
