2.8:
Effect of Income on Demand Curve: Inferior Goods
An increase in consumers' income usually means they want to buy more of a good. However, that's not always true.
Some goods exhibit a peculiar inverse relationship, where demand decreases as consumers' income increases. These are known as inferior goods.
It's important to note that the term "inferior" does not imply a lack of quality. Instead, it means these goods become less desirable compared to other goods as consumers' income rises.
Consider cheap instant noodles as an example.
When income rises, consumers often seek to enhance their living standards. They might choose to dine out more frequently instead of consuming instant noodles, causing a decrease in demand for these noodles. This results in the demand curve for instant noodles shifting to the left.
Conversely, when consumers' incomes are reduced, they seek cost-effective options to manage their expenses. This creates an increase in the demand for inferior goods, shifting their demand curve to the right.
However, individual consumers may deviate from these trends due to their unique habits or personal preferences.
For instance, a college student may continue to purchase instant noodles even with an increase in income due to their convenience and familiarity.
2.8 Effect of Income on Demand Curve: Inferior Goods
"Inferior goods" is an economic term for goods whose demand decreases as consumers' income increases. It is a fascinating concept that provides insights into how changes in financial circumstances affect consumer behavior. One classic example of this is the demand for public transportation.
Income Rise and Inferior Goods: When people's income rises, they often aspire to upgrade their lifestyle, which may include buying a personal vehicle for commuting. As a result, the demand for public transportation, considered an inferior good in this scenario, decreases, causing a leftward shift in the demand curve.
Income Reduction and Inferior Goods: Conversely, during periods of reduced income, consumers might need to cut back on expenses and revert to more cost-effective options such as public transportation. This increases demand for these inferior goods, causing the demand curve to shift to the right.
However, these trends might not hold for everyone, as individual preferences and habits can cause deviations. For instance, someone might continue to use public transportation even after a rise in income due to environmental concerns or convenience.
The concept of "inferior goods" doesn't imply a lack of quality but describes how consumer preferences change with income.