A normal good, as opposed to an inferior good, is a good for which:

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1. Career development
2. Normal vs. Inferior Goods: What's the Difference?

By Indeed Editorial Team

Published June 22, 2021

In economics, companies make and sell goods to please their customers. Goods can be a physical object or service that meets the consumer's needs and desires. Understanding the different types of goods, such as whether they are normal or inferior, and how they influence consumer purchases can help companies make more strategic business decisions. In this article, we define and compare normal and inferior goods, offer several examples of each and discuss how consumer behavior affects them.

Related: Goods in Economics: Definitions, Types and Examples

What is a normal good?

A normal good refers to the level of demand for the good when wages fluctuate. It increases in demand as consumers' incomes rise. In other words, when a person's wages increase, they buy more normal goods, and when a person's wages decrease, they buy fewer normal goods.

A normal good has a positive elastic relationship with income and demand. This means that changes in income and demand move in the same direction. Consumers tend to buy products at a higher price or indulge more in eating out and partaking in leisure activities when they earn more because they have a higher budget. Therefore, the demand for normal goods increases when income increases.

Related: Consumer Decision Journey: What It Is and How To Use It

What is an inferior good?

An inferior good is not inferior in quality but refers to the good's level of demand when wages increase or decrease. An inferior good is a good that decreases in demand as consumers' incomes rise. When a person's wages increase or the economy improves, they buy fewer inferior goods, and when a person's wages decrease or unemployment rises, they buy more inferior goods.

An inferior good has a negative elastic relationship with income and demand. This means that changes in income and demand move in the opposite direction. When consumers earn less due to economic downfalls, they buy fewer expensive products and use fewer expensive services. In that case, the products and services become inferior goods.

Read more: What Are Inferior Goods?

Normal vs. inferior goods

Normal and inferior goods are opposites, and they complement one another. When a person's budget increases, the person typically reduces their consumption of goods with less utility and upgrades to more satisfying products. They switch from inferior goods to normal goods. The opposite occurs when unemployment rates rise and the economy falls. During recessions, for example, people switch to lower-priced, or inferior, goods. This would increase their demand and decrease the demand for normal goods.

Here is a list of differences between normal and inferior goods:

• When a consumer's income rises, demand for normal goods rises, while demand for inferior goods falls.

• Normal goods have a positive correlation with income elasticity, while inferior goods have a negative one.

• Normal goods have a direct relationship with income changes and demand curves, while inferior goods have an inverse relationship.

• Consumers may prefer normal goods when prices are low and inferior goods when prices are high.

Read more: What Is Income Elasticity of Demand?

Examples of normal goods

Here are several examples of normal goods:

Groceries

When a consumer's income increases, store-bought foods often transform from inferior goods to normal goods. Consumers often purchase name-brand items, such as organic vegetables and fruit over frozen foods and fresh herbs and seasonings rather than dry herbs. They may also buy coffee beans and tea leaves instead of ground coffee and pre-made tea bags.

Dining

When a consumer has more disposable income, they might like to dine out more often at a higher-end restaurant or bar. For example, they might indulge in a steakhouse or a four-course dinner instead of purchasing fast food from a drive-thru restaurant.

Transportation

Consumers with higher budgets often use personal cars, including sports and luxury vehicles, to transport from place to place. They may also have additional funds to use taxis, car rentals and personal drivers.

Travel

While consumers enjoy traveling regardless of their financial circumstances, consumers with more disposable income often prefer a more luxurious vacation. They might fly to their destination, which can be more expensive than taking a road trip. They also may choose luxury accommodations, such as five-star hotels or all-inclusive resorts.

Related: How To Calculate Disposable Income

Name brands

Consumers may also buy name-brand when they have higher wages. For example, instead of generic brands, consumers might purchase designer shoes, clothing and cosmetic items. For their homes, they may buy name-brand cleaning supplies, decor items and furniture.

Examples of inferior goods

Here are several examples of inferior goods:

Groceries

Store-bought foods are very common examples of inferior goods. Some specific examples include canned and frozen fruits and vegetables. More groceries that can be inferior goods are canned meat, instant noodles and boxed foods, such as stuffing and mashed potatoes.

Dining

Consumers enjoy normal and inferior goods regardless of their current wages. However, fast food or takeout is often an inferior good when compared to dining at a sit-down restaurant. Cooking at home can also be an inferior good, since preparing meals can often be less expensive than dining services.

Transportation

Consumers with less disposable income often turn to public transportation, such as buses, trains and subways, which often cost less than owning and maintaining a car. Some consumers may use a bicycle, a free alternative to transport from place to place. The price differences between pre-owned vehicles and new vehicles can make used cars an inferior good.

Travel

Consumers with less disposable income travel in a less costly way. They might stay at motels instead of hotels, and they may choose to drive to their destinations instead of flying. Flying economy can be an inferior good compared to flying first class.

Generic brands

Generic brands are a popular example of inferior goods. They usually cost a lot less than their brand-name counterparts and aim to match the quality level. Some items that are often generic include food, beverages, clothing, shoes and beauty products.