When we learned about normal and inferior goods in class, I was curious about why these goods were named in the way they were because it seemed to me that the names and definitions didn't seem to match up.
Normal goods are those for which consumption varies directly with income, such as food and clothing. Normal goods are also called necessary goods because they need to be bought for our survival. People who make more money buy proportionally more food and clothing. Everyone buys normal goods, thus they are 'normal' and always present in our lives.
Inferior goods are those for which consumption varies inversely with income, such as fast food and public transportation. Often these are thought of as inferior to their alternative counterparts, freshly cooked food and personal transportation. However, this is not where the name comes from. Other (more common) examples of normal goods include generic brands of food. When income increases, people tend to consume their brand name counterparts, which are not necessarily higher in quality. Inferior goods refer to the price (being lower) rather than the quality.
There are also luxury goods, for which consumption increases at a greater rate than income. Luxury goods include fancy cars, chandeliers, and the things most poor people dream of having. I think the naming of this is pretty self-explanatory.
Sources:
https://www.investopedia.com/terms/n/normal-good.asp
https://www.investopedia.com/terms/i/inferior-good.asp
I think that this provides good insight and clarification to the definition of different types of goods. It is interesting how almost everything in economics ties back to utility and marginal utility. As you mentioned, the consumption of an inferior good decreases when consumer income increases. Perhaps this is due to the fact that many people associate quality with price, and therefore when their income increases, they go for the higher priced goods.
ReplyDeleteThank you for redefining the concepts of normal and inferior goods that we have gone over in class. This creates greater distinction between normal and inferior goods that may not have been immediately apparent before. However, your definition of luxury goods is very confusing. How can consumption increase at a greater rate than income? Do you mean that the income-to-consumption curve is exponential, so the greater concavity means that the rate of consumption increases more dramatically? To clarify, the increase in the rate of consumption is different from the increase in consumption.
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