What are Inferior goods
Inferior goods are items that see a decrease in demand when there is an increase in income. This occurs because as people’s incomes rise, they can afford to purchase better quality items and no longer have a need for the inferior good. An example of this is generic brand cereal. When people are tight on money, they may buy the generic brand because it is cheaper. However, once their income increases, they will likely switch to a higher-priced, better-quality cereal. Other examples of inferior goods include second-hand clothing and budget hotels. While people may purchase these items when their income is low, they will switch to more expensive options as their financial situation improves.
Why demand for inferior goods is usually inelastic
This is usually because inferior goods are necessities, and people will continue to purchase them even when their income is low. However, as people’s incomes rise, they can afford to purchase better-quality products and will therefore stop buying this. For example, someone who can only afford to buy generic brands of food may switch to more expensive name-brand items when their income increases. The demand for inferior goods is usually inelastic because people will not respond to small changes in price by decreasing their consumption of the good.
In other words, people will still buy the same amount of good even if the price goes up a little bit. The main exception to this rule is if there is a close substitute for the inferior good that becomes more affordable when the price of the inferior good increases. For example, if the price of generic pasta rises, people may instead purchase a different brand of pasta that is less expensive. In general, however, the demand is inelastic because people cannot easily do without them.
How producers of inferior goods try to overcome this inelasticity
Producers of inferior goods typically have a more difficult time than producers of other goods in overcoming inelasticity. This is because consumers of inferior goods are more likely to view the good as a necessity, and therefore, less likely to be willing to substitute another good for it, even if the price of the good rises. In order to overcome this inelasticity, producers of goods often rely on advertising and brand loyalty. They may also offer discounts or coupons to incentivize consumers to purchase their product. Ultimately, producers of inferior goods must work to convince consumers that their product is superior to its substitutes in order to overcome inelasticity.
Some examples of inferior goods
A classic example is bus travel. When incomes are low, people often cannot afford to own and maintain a car, and so they take the bus. As their incomes rise, they can afford to purchase a car and so they switch to using that for transportation, meaning they consume less of the good (bus travel) as their income grows. They are the opposite of normal goods, where an increase in income results in an increase in consumption. Examples of inferior goods can be found in many areas of life – from food to transportation to clothing. Consumers often switch to more expensive and better-quality products as their incomes increase, meaning that demand for inferior goods falls as incomes grow. This is an important concept in economics, as it helps to explain changes in consumer behavior as incomes change.
Our thoughts on the usefulness of the concept of inferior goods.
This concept is useful for businesses and marketers as it can help them to target specific products to certain demographics. For example, if a business knows that its product is an inferior good, it will be more likely to market to lower-income consumers. Conversely, if a business knows that its product is a superior good, it will be more likely to target higher-income consumers. They can also be useful for government policy makers.
For example, if the government wants to encourage people to save money, it could implement policies that make it more expensive. By doing so, people would be more likely to save money rather than spend on it. However, some economists argue that this concept is not always clear cut, and that income does not always have a direct relationship with demand. As such, they argue that the usefulness of the concept of inferior goods is limited.