2.8 : Effect of Income on Demand Curve: Inferior Goods

"Inferior goods" is an economic term for goods whose demand decreases as consumers' income increases. It is a fascinating concept that provides insights into how changes in financial circumstances affect consumer behavior. One classic example of this is the demand for public transportation.

Income Rise and Inferior Goods: When people's income rises, they often aspire to upgrade their lifestyle, which may include buying a personal vehicle for commuting. As a result, the demand for public transportation, considered an inferior good in this scenario, decreases, causing a leftward shift in the demand curve.

Income Reduction and Inferior Goods: Conversely, during periods of reduced income, consumers might need to cut back on expenses and revert to more cost-effective options such as public transportation. This increases demand for these inferior goods, causing the demand curve to shift to the right.

However, these trends might not hold for everyone, as individual preferences and habits can cause deviations. For instance, someone might continue to use public transportation even after a rise in income due to environmental concerns or convenience.

The concept of "inferior goods" doesn't imply a lack of quality but describes how consumer preferences change with income.