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What Are Inferior Goods? (Everything you need to know)

by interObservers
August 26, 2022
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Inferior goods are products that people tend to buy less when their income rises. They are often cheaper alternatives to other products in the same category. This blog post will discuss what inferior goods are, give some examples, and discuss how you can use them in your marketing strategy.

Let’s get started!

Table of Contents show
Understanding Inferior Goods
Inferior Goods vs. Normal Goods
How to use Inferior Goods in Your Marketing?
Inferior Goods and Giffen Goods
Inferior Good Examples
Do Inferior Goods Have an Inferior Quality?
Inferior Goods vs. Normal Goods vs. Luxury Goods
Inferior Goods and Consumer Behavior
Inferior Goods and Income Effect
Final Thoughts
Related posts:

Understanding Inferior Goods

An inferior good is an economic term for a product whose demand falls when earnings rise. Consumers begin purchasing more expensive substitutes as their income and the economy improve; thus, these goods lose appeal. There are two main types of inferior goods: necessary and discretionary.

Necessary inferior goods are those that people must purchase due to financial constraints, such as Ramen noodles or generic brands. Discretionary inferior goods are items that people can buy but often opt for something else when their income increases, such as fast food or cheap clothing.

Inferior goods typically have two main characteristics: low quality and/or low price. Low quality means that the product does not last long, is not durable, or does not perform as well as its superior counterpart. Low price means that the product is affordable for people with lower incomes.

Inferior Goods vs. Normal Goods

When it comes to economics, people regularly purchase all sorts of goods and services. In some cases, people might buy what are known as inferior goods while, in other situations, they’ll go for normal goods instead. So, what exactly is the difference between normal and inferior goods?

In a nutshell, Inferior goods tend to move against the flow with negative income elasticity, while normal goods move against the flow with positive income elasticity.

There are several key characteristics that inferior goods tend to have. For one, they are usually low quality and/or low price. This means that they might not last very long, might not work as well as their more expensive counterparts, and so on. Additionally, inferior goods are often necessary purchases for people with lower incomes. However, as people’s incomes rise, they will likely purchase superior substitutes for these goods.

On the other hand, normal goods are of better quality and more expensive than inferior goods. Therefore, people will continue buying them regardless of whether their income goes up or down. When consumers’ income increases, they might buy even more of these products.

So, it’s essential to understand the difference between inferior and normal goods when it comes to marketing. For example, if you’re targeting people with lower incomes, you can use inferior goods in your marketing strategy by focusing on the product’s low price and/or quality.

You can also appeal to the necessity of the product for people with low income. However, as people’s incomes rise, you need to adapt your marketing strategy continually as their target market’s income level changes.

On the other hand, if you’re targeting people with higher incomes, you’ll want to focus on your product’s quality and/or price. You can also appeal to the luxury aspect of your product.

How to use Inferior Goods in Your Marketing?

Inferior goods can be a powerful tool for marketing professionals targeting specific consumers. By understanding the concept of inferior goods, you can better identify products that may be falling out of favor with certain income brackets and create campaigns specifically tailored to appeal to those consumers.

Additionally, by emphasizing the low cost or value of inferior goods, you may be able to convince consumers that these products represent a good deal, even when more expensive alternatives are available.

Inferior Goods and Giffen Goods

An inferior good can sometimes become a Giffen good. A Giffen good is an exception to the general rule that demand for inferior goods decreases as incomes rise.

A Giffen good occurs when the increase in the price of a superior substitute leads to a rise in demand for the inferior good. This happens because people with low incomes cannot afford the more expensive substitutes. As a result, they are forced to purchase inferior goods instead.

An example of a Giffen good is potato chips. When the price of healthier snacks, such as fruits and vegetables, rises, people will often switch to buying potato chips instead. This is because potato chips are a relatively cheap snack that satisfies people’s hunger.

While inferior goods typically have a negative connotation, Giffen goods can be seen as a positive exception to this rule. This is because they provide low-income people with an affordable substitute for more expensive items.

Related: Determinants of Demand

Inferior Good Examples

Inferior Good Examples

One classic example of an inferior good is ramen noodles. These noodles are very affordable and can be bought in large quantities. However, they are also low quality and not very nutritious. As a result, many people consider them to be junk food.

As people’s incomes have increased in recent years, the demand for ramen noodles has decreased. This is because people have begun buying more expensive and healthier substitutes, such as pasta or rice dishes. As a result, ramen noodle manufacturers have slashed prices to stay competitive.

Another example of an inferior good is coffee. A McDonald’s coffee, for example, maybe a lesser product than a Starbucks coffee. When a person’s income decreases, they might switch to the less expensive McDonald’s brew in place of their usual Starbucks coffee. When a person’s income increases, on the other hand, they may switch from their cheaper McDonald’s brew to the more expensive Starbucks coffee.

Do Inferior Goods Have an Inferior Quality?

One common misconception about inferior goods is that they must have inferior quality. However, this is not always the case. Inferior goods can be low quality, but they don’t have to be.

For example, a luxury car might be a normal good, while a budget car might be an inferior good. The luxury car will likely have a better quality than the budget car. However, the budget car is still necessary for people with lower incomes.

Inferior Goods vs. Normal Goods vs. Luxury Goods

It’s also essential to understand the difference between inferior, normal, and luxury goods. Inferior goods are those that people purchase when their income is low. Normal goods are items that people will continue buying regardless of whether their income rises or falls. On the other hand, luxury goods are products that people only buy when their income is high.

Inferior goods are often characterized by low quality and/or low price. In contrast, normal goods typically have better quality and are more expensive than inferior goods. Finally, luxury goods are the most costly and have the best quality of all three types of products. These are often purchased when individuals have a lot of disposable income.

When it comes to marketing, it’s essential to understand the difference between inferior, normal, and luxury goods. This will help you determine which type of product you should be marketing to people based on their income level.

Inferior Goods and Consumer Behavior

Marketing is all about understanding consumer behavior. This includes understanding what people buy when they buy it and why they make their decisions. It’s also important to know how different economic factors influence people’s buying habits.

Inferior goods are a great example of how economics can affect consumer behavior. When people’s incomes rise, they purchase more expensive substitutes for inferior goods. This is because the quality of these goods is often poor and/or the price is low.

It’s important to understand consumer behavior to be successful in marketing. After all, if you don’t know why people are buying your product, it won’t be easy to sell it to them. You also need to be aware of how economic factors can influence people’s buying decisions.

Inferior Goods and Income Effect

The income effect is the change in consumption of a good or service resulting from a real income change. The income effect can be positive or negative. A positive income effect means that people will consume more of a good or service as incomes rise. A negative income effect implies that people will consume less of a good or service as incomes fall.

Inferior goods usually have a negative income effect. As incomes rise, people will consume less of the goods. For example, if someone’s income increases, they may purchase a more expensive car and stop buying the inferior good (the budget car).

Related: Income Effect

Final Thoughts

Inferior goods are a necessary part of the economy. They provide people with affordable options when their income is low. However, as people’s incomes rise, they tend to purchase more expensive substitutes for these inferior goods.

As a result, manufacturers of inferior goods must know how consumer behavior can change in response to economic factors. This will help them determine how to best market their products.

Do you have any experience with inferior goods? Share your thoughts in the comments below!

Thanks For Reading!

Related posts:

  1. Income Elasticity of Demand: What It Is and How to Calculate (and Apply) It
  2. Decoding Consumer Behavior: What is the Income Effect?
  3. The Rise of Luxury Ecommerce: Trends and Strategies
  4. 5 Determinants of Demand: What Drives Individual Consumer Behavior
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