Inferior Goods Definition

Define Inferior Goods in Simple Terms

Inferior Good

“Inferior good” is an economic term for a good whose demand drops when people’s income rises.

Typically this occurs because a more costly alternative, which is perceived to be superior, is now more affordable.

For example, a consumer that typically buys McDonald’s coffee may decide to switch to buying Starbucks.

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Inferior Goods in Finance?

Despite the name, inferior goods are not always actually inferior to other goods, except in price and perception.

An example of an inferior good that is more or less identical to its more expensive counterpart is store-brand foods.

Usually, these come from the same production lines as brand name foods, and yet consumers still gravitate towards brand names when they can afford them.

Likewise, what is considered an “inferior”good is largely decided by trends in consumer behavior rather than any absolute statement of quality.

For example, fast food may be considered an inferior good in wealthy parts of a country, yet might be perceived as more of a luxury in poorer areas or developing countries.

Inferior goods also don’t account for taste or individual preference, so it isn’t a hard and fast rule that individuals with higher income always abandon inferior goods as soon as they have the chance.

Other Goods

The “superior”goods that consumers switch to buying are called normal goods.

An important note is that a normal good is not the same as a luxury good.

Inferior and normal goods are both categories of products that are deemed essentials; food, for example.

Luxury goods are not essential, although consumers may still spend more money on them when their income increases.

Inferior Goods Definition FAQs

An “inferior good” is an economic term for a good whose demand drops when people’s income rises.
Typically this occurs because a more costly alternative, which is perceived to be superior, is now more affordable.
Despite the name, inferior goods are not always actually inferior to other goods, except in price and perception.
An example of an inferior good that is more or less identical to its more expensive counterpart is store-brand foods. Usually, these come from the same production lines as brand name foods, and yet consumers still gravitate towards brand names when they can afford them.
The “superior” goods that consumers switch to buying are called normal goods.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.