Normal Goods vs Inferior Goods
What could be Normal and Inferior goods? The names are in themselves very confusing and suggestive of something that is of weaker quality. Thankfully, these are terms used by only economists and not by common people. Goods or items used by us are classified by economists based upon our behavior. If the consumption of a good increases when our income levels increase, it is said to be a normal good, on the other hand, if its consumption goes down, it is classified as an inferior good. This dichotomy is still not clear, so let us take a closer look through examples.
In the normal course, one would expect consumption of goods to increase with increasing income levels. This is a positive correlation between quantity and income, and suggests an increase in demand when the income of an individual increases. A good is normal if the coefficient of elasticity of demand is positive and less than one. One example that reflects this phenomenon is the demand for luxury cars. Luxury cars are liked by everyone. But, as they are very expensive, they are bought, only when the income levels of an individual rises.
However, there are circumstances when opposite of this tendency takes place. Demand of certain goods and service is negatively affected when income levels rise. For example, a person might be traveling through bus or other forms of public transport, but as soon as he buys his own motorcycle or car, he stops using public transport. In such a case, public transport is classified as an inferior good, though in reality it might not be so. The demand for such goods goes down with the increase in income. There is nothing to suggest that the quality of good is inferior, but the classification by economists is such that it makes people confused. A classic example of inferior goods is noodles that are prepared instantly. Though, there is nothing to suggest that noodles are of inferior quality, they are consumed less as income levels rise and are consumed mostly by students.
However, there are goods that cannot be classified as either normal or inferior as their demand or use shows no appreciable change with the increase in income levels. Soap used in the bathroom or the dishwashing detergent in the kitchen do not get increased in quantity when income levels rise nor their use is lessened in any way. Thus, these types of goods are neither normal nor inferior.
What’s the difference between Normal Goods and Inferior Goods?
• Economists classify goods as normal or inferior depending upon change in their levels of consumption with increase in income levels
• If consumption levels of goods go up with the rise in income levels, they are grouped as normal goods
• If consumption level goes down with the increase in income, goods are categorized as inferior goods