Normal Goods and Inferior Goods

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.

Necessity Goods

The goods whose demand does not change with a change in income of the consumer. Some of the examples of Necessity Goods are wheat flour, salt, medicines, etc. Necessity goods are essential for human existence, because of which these goods are found at a higher place in the consumer’s order of preference.

Effect on Demand Curve (When there is a change in Income)

When there is a change in the income of consumers, it causes a positive change in the demand for normal goods and a negative change in the demand for inferior goods. Therefore, in the case of normal goods and inferior goods, the demand curve of a given commodity changes with a change in income. Besides, in the case of necessity goods, there is no change in its demand when the income of consumers increase or decrease.

Change in Income in case of Normal Goods

If there is an increase or decrease in the consumer’s income, it directly affects the given commodity’s demand.

1. Increase in Income: When the income of the consumer increases, the demand for normal goods also increases. In the below graph, even at the same price of OP for Refrigerator, with an increase in income, the demand for Refrigerator rises from OQ to OQ_1, which results in a rightward shift in the demand curve of normal good from DD to D₁D₁.

2. Decrease in Income: When the income of the consumer decreases, the demand for normal goods falls. In the below graph, without any change in the price OP for Refrigerator and a decrease in income, the demand for Refrigerator falls from OQ to OQ_1, which results in a leftward shift in the demand curve of normal good from DD to D₁D₁.

Change in Income in case of Inferior Goods

If there is an increase or decrease in the consumer’s income, it inversely affects the given commodity’s demand.

1. Increase in Income: When the income of the consumer increases, the demand for inferior goods fall. In the below graph, when the price for Single Door Refrigerator stays at OP and the income increases, the demand for Single Door Refrigerator falls from OQ to OQ_1, which results in a leftward shift in the demand curve of inferior good from DD to D₁D₁.

2. Decrease in Income: When the income of the consumer decreases, the demand for inferior goods increases. In the below graph, when the price for Single Door Refrigerator stays at OP and the income decreases, the demand for Single Door Refrigerator rises from OQ to OQ_1, which results in a rightward shift in the demand curve of inferior good from DD to D₁D₁.

Rightward and Leftward Shift in Demand Curve

Besides change in the prices of related goods and the income of the consumer, a commodity’s demand curve also shifts because of various other factors. 

Reasons for Demand Curve shifting towards the Right:

• If there is an increase in the price of Substitute Goods.
• If there is a decrease in the price of Complementary Goods.
• If there is an increase in population.
• If the tastes are in favour of the commodity.
• If there is an increase in the consumer’s income (Normal Goods).
• If there is a decrease in the consumer’s income (Inferior Goods).
• If the consumer expects an increase in the price of the commodity in future.

Reason for Demand Curve shifting towards Left:

• If there is a decrease in the price of Substitute Goods.
• If there is an increase in the price of Complementary Goods.
• If there is a decrease in population.
• If the tastes are not in the favour of the commodity.
• If there is a decrease in the consumer’s income (Normal Goods).
• If there is an increase in the consumer’s income (Inferior Goods).
• If the consumer expects a decrease in the price of the commodity in future.