inferior good

noun
Updated on: 13 Oct 2017

Definition of inferior good

:a commodity the consumption of which decreases as its price declines or as the income of consumers rises because of the increased income available to buy preferred though more expensive commodities

There's more!

Love words? You must — there are over 200,000 words in our free online dictionary, but you are looking for one that’s only in the Merriam-Webster Unabridged Dictionary.

Start your free trial today and get unlimited access to America's largest dictionary, with:

  • More than 250,000 words that aren't in our free dictionary
  • Expanded definitions, etymologies, and usage notes
  • Advanced search features
  • Ad free!
Already a subscriber? Log in.

Financial Definition of INFERIOR GOOD

inferior good

What It Is

An inferior good is a product for which demand goes down as income goes up.

How It Works

As opposed to demand for "normal goods," which goes up as income increases, demand for inferior goods goes down as income increases.  Consumers of inferior goods "trade up" to higher priced goods as soon as they can afford it.

Transportation provides a good example. When income is low, it makes sense to ride the bus. But as income increases, people stop riding the bus and start buying cars. It's acceptable to most people to ride the bus when they can't afford a car. But as soon as they can afford one, they buy a car and stop riding the bus. Bus riding declines as income increases.

Rice, potatoes and instant noodles are other examples of inferior goods.

Why It Matters

As countries increase GDP, their populations eschew inferior goods for normal goods. This is playing out in real time in places like China and India as millions of people leave a subsistence lifestyle and move into the middle class. [See more examples of the changes happening in China and India: 10 Facts About China You Won't Believe (But You Should) and What You Didn't Know About Asia's Next Powerhouse]

Inferior goods are not the same worldwide. Fast food can be considered an inferior good in many western countries, while emerging economies consider it a normal good as they trade up from rice, potatoes, etc.


Learn More about inferior good


Seen and Heard

What made you want to look up inferior good? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

spoken rather than written

Get Word of the Day daily email!

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!