What are Normal Goods?
The goods whose demand increases when there is an increase in the income of the consumer are known as Normal Goods. These include the commodities which we usually purchase. Besides, in general, consumers purchase more of normal goods when their income increases and purchase less of these goods when their income falls. For example, if demand for a Refrigerator increases with an increase in income, then the Refrigerator will be said to be a normal good. The income effect of normal goods is positive.
In the above graph, the income of the consumer is shown on Y-axis and the demand for a normal good (say, Refrigerator) is presented on X-axis. When there is an increase in the income from OY to OY1, then the demand for Refrigerator will also rise from OQ to OQ1.
What are Inferior Goods?
The goods whose demand reduces when there is an increase in the income of the consumer are known as Inferior Goods. In simple terms, there exists an inverse relationship between the consumer’s income and demand for inferior goods. Therefore, the income effect of inferior goods is negative. Consumers usually purchase inferior goods because they are essential for their life; like, coarse grains, etc. For example, if the consumer’s income increases and he prefers to replace his Single-Door Refrigerator with French door style refrigerator, then the demand for Single-Door Refrigerator will fall. Also, in this case, the Single-Door Refrigerator is the Inferior Good.
In the above graph, the income of the consumer is shown on Y-axis, and the demand for an inferior good (say, Single Door Refrigerator) is shown on X-axis. When there is an increase in the income from OY to OY1, then the demand for Single Door Refrigerator will also fall from OQ to OQ1 because the consumer shifts from Single Door Refrigerator to French Door Style Refrigerator.
Difference between Normal Goods and Inferior Goods
| Basis | Normal Goods | Inferior Goods |
|---|---|---|
| Meaning | These are the goods whose demand increases when there is an increase in the income of the consumer. | These are the goods whose demand reduces when there is an increase in the income of the consumer. |
| Relation | There is a direct relationship between the income of the consumer and the demand for normal goods. | There is an inverse relationship between the income of the consumer and the demand for inferior goods. |
| Income Effect | The income effect of normal goods is positive. | The income effect of inferior goods is negative. |
| Law of Demand | Normal Goods follow the Law of Demand. It means that there is an inverse relationship between the price of a normal good and its quantity demanded. | Inferior Goods may or may not follow the Law of Demand. It means that there may or may not be an inverse relationship between the price of inferior goods and its quantity demanded. |
| Example | Garlic Butter is a normal good if its demand increases when there is an increase in income. | Plain Butter is an inferior good if its demand decreases when there is an increase in income. |
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