Fundamental Differences Between Normal vs. Inferior Goods
By Indeed Editorial Team
Published 10 June 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
If you're working with economic data or principles, you may encounter normal and inferior goods. These types of goods have some key differences, as a product can't be both a normal and inferior good. Learning about what makes a product a normal vs. inferior good may help develop your knowledge of basic economic principles. In this article, we discuss what inferior and normal goods are, describe the benefits of each, give examples of each and explain them in relation to economic theory.
Normal vs. inferior goods
Here are the key differences between normal vs. inferior goods:
What are inferior goods?
Inferior goods are products that demand a relatively low price. More specifically, they are good that people purchase when they have a low income. Inferior goods may become more popular during an economic recession or may remain popular among those in lower-income brackets. The concept of inferior goods is part of economic theory and is useful for explaining the demand for specific types of products based on macroeconomic activity.
What are normal goods?
In contrast to inferior goods, normal goods command a relatively high price. Normal goods typically cost more than inferior goods because they're in greater demand and people consume them without any significant decline or increase in preference. Normal goods are often part of the essential products that people buy when they have the ability to do so.
Types of normal goods
Here's a list of some common types of normal goods:
designer goods like purses, shoes and belts
jewellery such as necklaces, bracelets and earrings
consumer durables like cars, machinery and household appliances
electronics such as computers, televisions and other devices
furniture such as sofas, couches and beds
clothing like jeans, dresses, suits and shirts
Types of inferior goods
Here are some examples of inferior goods:
fast food products
consumable items like sweets, gum, chips, and chocolate
tools like hammers, screwdrivers and drills
raw materials like lumber and sheet metal
generic brand items
Benefits of normal goods
Here are some common benefits for consumers when purchasing normal goods:
Provides substantial value
If consumers are able to purchase normal goods regularly, they can enjoy the use of a product that can provide substantial value. Normal goods are typically essential to people's lives because they offer more than just a utility. For example, a car is more than just transportation; it offers the convenience and safety to get from one location to another in a safe, timely manner.
Stimulates the economy
The purchasing of normal goods can serve as a catalyst for boosting the economy. People can purchase normal goods to create more jobs, increase tax revenues, promote technology and improve productivity. This occurs because consumers are placing more money into the economy with their purchasing, allowing companies to pay more employee salaries and increase their revenue.
Allows for luxury or upgradable goods
If provided with an opportunity for choice, people may select a higher grade of product that not only meets their needs but also offers an enhanced experience. For example, consumers may purchase a more expensive car that provides better safety features, additional convenience and higher quality over a lower-end model. Consumers may also choose to purchase items that offer status or the perception of class.
Benefits of inferior goods
Here are descriptions of several benefits of inferior goods:
Cheap to produce and ship
Inferior goods are typically easy to produce or manufacture at a low cost. In fact, consumers may choose inferior goods because they are cheaper than normal goods. They don't mind paying lower prices so long as they get the same quality and experience.
Businesses can ship inferior goods at less of a cost via mass production and manufacturing in a large volume. For example, when consumers are more interested in volume, they may seek inferior brands that can be mass-produced on a large scale without too much additional cost. This way, they can begin selling the product right away without waiting for status or delivery time.
High value in comparison to the price
Inferior goods may command a relatively low price, but they are also of high value to consumers. Inferior goods typically provide consumers with the same level of value as normal goods. However, they cost less than normal ones and allow consumers to purchase more. For example, some food items such as bread, milk and eggs are considered inferior goods because they cost less than other types of food while providing the same nutritional value.
Easy to find
Inferior brands are often easy to find because of their popularity. Consumers may seek inferior brands that are mass-produced at convenient locations, such as grocery stores or drug stores, rather than seeking out higher-end brands that might be available at speciality shops or online only. This availability allows consumers to rely on inferior goods for their regular purchasing, regardless of their location.
Normal goods in economic theory
In economic theory, normal goods are those for which demand increases when income rises. According to this definition, a normal good is something that consumers buy more of as their income goes up.
For example, if people see their income increase by 5% over the course of a year and they typically spend $100 on hamburgers each week, then they might probably spend $105 on hamburgers the following year. In this case, hamburgers are considered a normal good because their overall consumption increased with an increase in income. This occurs because people have more money to spend on products and services when their income increases.
Inferior goods in economic theory
In economic theory, inferior goods are those for which demand decreases when income rises and increases when income decreases. According to this definition, an inferior good is something that consumers buy less of as their income goes up and buy more of when their income goes down. For example, if people see their income increase by 5% over the course of a year and they typically spend $100 on coffee each week, they probably spend $95 on coffee the following year. In this case, coffee is considered an inferior good because their overall consumption decreased with an increase in income.
Tips for determining if a product is a normal good or inferior good
Here are some tips that you can use to classify products by whether they're normal or inferior goods:
Analyse how their price changes based on the performance of the economy: If a product's prices are sensitive to changes in the economy, then that may give an indication of the type of product. If the price increases during an economic downturn, then the product may be an inferior good.
Analyse how their price changes based on income changes: If the price increases with an increase in income, then the product may be a normal good. If the price decreases with an increase in income, then the product may be an inferior good.
Giffen goods vs. inferior goods
Giffen goods are staple products in a consumer's diet, such as wheat, dairy and vegetables. Inferior goods can include staple products but also products that become more popular during economic declines, such as loans. Both are types of goods that command a relatively low price and cost less than normal goods on average.
Luxury goods vs. normal goods
Some normal goods may also be luxury goods, but typically most people don't buy luxury goods regularly, regardless of their income level. High and low-income earners may both purchase luxury items at some point. As income increases, generally, the demand for luxury goods may also increase.
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