Originally Posted by mahmood

@sweetayesha

I am not sure who gave you those ideas.your reasoning is wrong. and your explanation very confusing. please dont mislead people if you dont know the answer.

normal goods are those goods whose consumption would rise with the advance in income. as your income rises, so does their demand. for example, consider cars. when your income rises, you dont want to go in the public transport but would like to own your car. thus car is a normal good.

inferior goods are somewhat different. their demand decreases with the rise in income. so they have a negative relationship with respect to income. example is public transport system. as people become affluent, they want to travel less and less on public transport, and more and more on their own cars. another example could be discount stores ( e.g. walmart). as income goes down, people go more and more to the discount stores. that is what actually happened back in the american recession of 2003. while the majority of the big chains reported losses, companies like McDonalds and Walmart showed increased profits. the reason was obvious. as people had less and less to spend, they were heading to the discount stores and junk food joints.

a thing does not necessarily have to be cheap or expensive to be inferior good. water is cheap but its demand might go up with your income increase. it could be because you want to, say, take more baths and stuff. the thing is you will never hear someone's water consumption going down because they are earning more. that never happens. so water is a normal good even though it is cheap.

and you can not say, by the same token, that wheat is inferior and rice is normal good. both are normal goods.

I was reading an economics textbook written by some pakistani author, and he had given those definitions as described by you. i wonder if you have picked them up from that book.

never heard of anything called superior goods.


In economics (consumer theory), a Giffen good is that which people consume more of as price rises, violating the law of demand. In normal situations, as the price of such a good rises, the substitution effect causes people to purchase less of it and more of substitute goods. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.

In rare cases, something could be inferior and normal good at the same time, though in different markets. junk food is one common example. junk food joints such as McDonalds are considered trash by many people in the west. so if you dine regularly at McDonalds, you belong to poor class. as people become rich more and more people tend to leave dining at mcdonalds. that is the main reason you will see mcdonalds at every corner in poor neighbourhoods. it is an inferior good in the USA.

In a different market and setting such as Pakistan, people think McDonalds is something special. as they get some income increase, they want to go to McDonalds. so it could be treated as normal good here.