What are Inferior Goods? Meaning & Examples

The success of some products may depend on not how good they are but rather how customers feel about them. This applies to certain categories of goods, especially inferior goods, which are less expensive and more in demand when customers have less spending cash. Therefore, marketing department research consumer behaviour patterns to boost sales of inferior goods and handle their supply. Understanding what inferior goods are and how they impact consumer purchases can help you make strategic choices for your company.

In this article, we will define inferior goods briefly and describe the relationship between inferior goods and consumer habits. We’ll also provide examples of inferior goods, explore the significance of these goods in the global market. 

Did you know? 

The term “inferior” does not relate to the quality of items but rather to the fact that such things are affordable to people with lower income levels.

Meaning of Inferior Goods

Inferior goods are items for which consumer preferences decrease as consumers earn more. Low-cost products that aren’t as good as “normal goods” or “necessities” are often food and household items that aren’t branded. For an inferior good example, if a person is given a pay cut, they may buy inferior goods that are less costly than standard goods. Some examples are buying cereal, pulses and peanut butter from the grocery store that don’t have a brand name instead of buying from a supermarket.

The word inferior relates often not to the product’s quality but to its price and the value placed by the buyers. In some inferior good examples, the quality is lower than the corresponding normal good, but in others, it’s the same. Occasionally, normal and comparable inferior goods have exactly equal ingredients; the only variations between the goods are the packaging and price.

Also read: Affiliate Marketing Business – What Is It & How to Do Affiliate Marketing in India

Inferior Goods and Consumer Behaviour

Consumer buying behaviour can affect the demand for inferior goods. When customers spend less money, they are more likely to choose inferior goods over standard goods to cut costs. When their income rises, they may prefer to spend it on normal goods instead of inferior goods. For example, when people’s incomes are low, they like to buy loose items like pulses, wheat flour, and other groceries, but when their incomes go up, they like to buy branded packs of the same things.

Moreover, since many inferior goods are regular household staples such as food and other products, numerous people are becoming loyal to a product irrespective of its price level. They may continue to buy it even as their incomes change. Therefore, while the demand for inferior goods often indicates economic growth, it may not always be the case. 

What Is the Income Elasticity of Demand?

The changes in demand for product in relation to the changes in income is known as the income elasticity of demand. Therefore, elasticity of income measures how much market demand for a products shifts in response to changes in a customer’s income. The ratio refers to the change in demand divided by the change in income.

Businesses predict economic growth and possible loss based on the income elasticity of demand. Therefore, they can estimate the success of their products. With this understanding, business owners can develop a strategy for their products. For example, this could help them determine whether to introduce a high quality product and or regular quality product with a lower pricing. 

Examples of Inferior Goods

Inferior goods are almost always less expensive replacements for standard goods. Among the most common forms of inferior goods are:

Groceries

Groceries have the most typical uses of inferior products. Examples, include buying grocery items from local kiranas. These goods are less costly than their regular goods equivalents, in supermarkets and similar convenience stores. As, these are non-branded they are cheaper, without much difference in quality.

Transportation

Another common inferior good is transportation. Customers with less expendable income are more likely to take public transportation such as trains and buses. Once their income increases, they may decide to purchase a car rather than rely on public road transport.

Fast Food

Some consider fast food to be an inferior good, even though many consumers, regardless of income level, enjoy it. These days, fast food has become a poor substitute for normal food, comparable to dining at a higher-end restaurant. Dining out at a restaurant is more costly and is usually reserved for those with more expendable cash.

Places to Stay

Travel lodgings may also be inferior. Customers with less expendable cash may prefer to stay in small hotels or lodges rather than more fancy hotels when travelling. When their income increases, they may prefer to stay in the more high-end, “normal goods” accommodation facilities, such as hotels or resorts.

Generic Brands

Another popular low-quality example is generic brands. These products are frequently significantly less expensive than their brand-name counterparts, but they are typically made using the same ingredients or at the same level of quality. In reality, numerous generic products are derived from big brands and sold under a generic label at a lower price.

Knowing how customers act and demand and supply is critical for businesses that produce inferior goods. When customers have less expendable income, they are far more inclined to purchase inferior goods, which usually causes a surge in demand. At the same time, demand for these items is reasonably constant in most economic situations. Businesses that produce inferior goods must expect a significant rise in demand for their products in a recession, where a large portion of the population observes a significant drop in their income.

Also read: Popular Business Names and Name Ideas for Mobile Shop

Types of Goods

Normal Goods

Food, household goods, clothing, and other similar items are normal goods or key considerations. Normal goods can differ in price, but they frequently have lower-priced goods that consumers can buy if their income does not enable them to buy the higher-priced normal goods. For instance, a buying clothing from Reliance Trends would fall under normal goods. Whereas, clothing from footpaths would be an inferior good. 

Giffen Goods

Giffen goods are a subsection of inferior goods with no normal good substitute and don’t react to changes in demand and supply like inferior goods do. These goods are required regardless of the financial situation and their cost. In fact, as consumers’ disposable cash decreases, they typically spend more on Giffen goods than other inferior goods. This is because they are less expensive and meet basic nutritional needs for example bread, rice, and potatoes. 

Luxury Goods

Luxury goods are items that are not required for survival. When customers have a lot more money to spend and choose to buy certain goods instead of regular ones, demand for these products goes up. Luxury goods frequently include items such as:

• Designer handbags
• High-end vehicles
• Alcohol
• Jewellery

Inferior vs Normal Goods

Normal and inferior goods are opposites. When a person’s budget goes up, they usually stop buying things that aren’t as useful and start buying things that provide value for money. They stop buying lower priced goods and start buying good ones. When the economy gets worse and there are more people out of work, the opposite happens. 

When there is a recession, people switch to cheaper or worse goods. This would make them want more and make people want less of normal goods.The demand for inferior goods grows when incomes are less but decreases when the incomes rise. Moreover, based on the country and geography, a product that is inferior for one individual may be normal for the other. 

Another example, TVs. HDTVs could be normal goods in developing countries, whereas it would be considered inferior goods in developed countries as they have moved on with 4K TVs. 

Consider two cars, A and B, for sale and priced at ₹5 lakh and ₹10 lakh. Both vehicles share the similar purposes, but their features are slightly different. In the preceding example, automobile A is a lower-quality good for those with lower earnings. Even so, it remains a common good for those who cannot afford to purchase hingher priced automobiles with more features.  

Inferior vs Giffen Goods

Giffen goods are products whose demand increases even as their prices rise. It occurs primarily due to a lack of choices in specific categories of products. As a result, people should continue to buy these goods regardless of how much the prices rise. Lower-income or economic disasters, on the other hand, drive the market for inferior goods rather than pricing.

The Curve of Demand for Inferior Goods

A demand curve shows how a change in one item affects the demand for another. The inferior goods demand curve, for example, reflects the disparity in levels of income and consumer tastes, as well as the effect on demand.

Since demand for ordinary goods is directly related to one’s income, an increase in income will lead to an external shift in demand. On the other hand, as consumer habits change based on expenditure capabilities, there may be an internal shift in demand for inferior products.

Also read: Best Eco-Friendly Business Ideas in India

Conclusion

When consumers start making a profit or changing their socioeconomic status, they tend to switch to more expensive products, resulting in inferior goods. The concept of inferior goods meaning has no bearing on the product or service quality. Rather, it denotes a shift in consumer preferences due to increased income and an immediate shift to more good offers.

A product class that is inferior for one set of individuals may be normal for another group while also being on time. Moreover, only the consumer’s spending power and priorities can ascertain which service or product is normal and which is inferior. In addition to normal goods, Giffen goods, and luxury goods, inferior goods are among the four product categories.

Follow Legal Tree for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.