Inferior good

In economics, an inferior good is a good whose quantity demanded decreases when consumer income rises (or quantity demanded rises when consumer income decreases), unlike normal goods, for which the opposite is observed. Normal goods are those for which consumers' demand increases when their income increases. This would be the opposite of a superior good, one that is often associated with wealth and the wealthy, whereas an inferior good is often associated with lower socio-economic groups.

Inferiority, in this sense, is an observable fact relating to affordability rather than a statement about the quality of the good. As a rule, these goods are affordable and adequately fulfill their purpose, but as more costly substitutes that offer more pleasure (or at least variety) become available, the use of the inferior goods diminishes.

Depending on consumer or market indifference curves, the amount of a good bought can either increase, decrease, or stay the same when income increases.

There are many examples of inferior goods. Several economists have suggested that shopping at large discount chains such as Walmart and rent-to-own establishments vastly represent a large percentage of goods referred to as "inferior". Cheaper cars are examples of the inferior goods. Consumers will generally prefer cheaper cars when their income is constricted. As a consumer's income increases the demand of the cheap cars will decrease, while demand of costly cars will increase, so cheap cars are inferior goods.

Inter-city bus service is also an example of an inferior good. This form of transportation is cheaper than air or rail travel, but is more time-consuming. When money is constricted, traveling by bus becomes more acceptable, but when money is more abundant than time, more rapid transport is preferred. In some countries with less developed or poorly maintained railways, for example Serbia, this is reversed: trains are slower and cheaper than buses, so rail travel is an inferior good.

Certain financial services, including payday lending, are inferior goods. Such financial services are generally marketed to persons with low incomes. People with middle or higher incomes can typically use credit cards that have better terms of payment or bank loans for higher volumes and much lower rates of interest.

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