All inferior goods must have been normal at some income level, but normal goods don’t necessarily...

All inferior goods must have been normal at some income level, but normal goods don’t necessarily ever have to be inferior. Explain

Expert Solution

Inferior goods are those goods whose demand decrease as the income of the person increases and the normal goods are those goods whose demand increase with an increase in the income of the person.

Let's take an example of two good. Let's assume Bread is an inferior good and Chicken is a normal good. Bread is an inferior good but for the people with low income who consume it on daily basis, it is just like any other good i.e. normal good. Unless the income of those people didn't increase exponentially they will not stop consuming that inferior good. Let's further assume that the income of this particular individual is just $10 and he consumes 4 units of bread. If his income decreased to $5 he will consume only 2 units of bread. So, bread becomes a normal good for him. But if his income rises to $1000 he will stop consuming bread and consume chicken instead.

A chicken is a normal good because it is used by all the society irrespective of the income of the people (Assume this society is made of people who all have income above $1000.). If their income decrease, they will consume less Chicken and vice versa.

Conclusion: Inferior Goods are normal goods for the people in the lower strata of the society whose income is very low and they can't afford much. With increasing income, they stop consuming those goods. These goods are not at all consumed by people with higher income. Normal goods are normal because all the people use them irrespective of their income.

Rahul Sunny answered 1 year ago

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