Inferior Goods

Inferior goods are a type of economic goods where demand actually drops as consumer income rises. Generally, these goods are marked by low prices and lower quality when compared to alternatives. As income increases, people tend to consume fewer inferior goods since the extra income allows them to make different choices. For inferior goods, the demand curve slopes downward in relation to income, showing a negative income elasticity. This trend is often illustrated graphically with an Engel curve.

As income grows, consumers can afford to buy higher-quality substitutes. A typical example of an inferior good is makeshift housing, which tends to be in high demand among low-income populations (e.g., shantytowns). As average incomes rise, demand for such housing declines in favor of apartments. While both meet the basic need for secure shelter, apartments are of higher quality and cost. For this reason, the availability of makeshift housing usually decreases as incomes increase, marking it as an inferior good. Another common example includes basic staples like bread or potatoes compared to more costly foods, such as meat. When incomes go up, families often cut back on cheaper foods like potatoes in favor of better-quality, more expensive options like meat.

It’s essential not to confuse inferior goods with Giffen goods. Giffen goods are a special type of inferior good for which demand rises as the price goes up. The demand curve for Giffen goods, therefore, slopes upward with respect to price. For more details, refer to the Giffen paradox.