Question

Distinguish between a normal good and an inferior good. Give example in each case.

Distinguish between an inferior good and a normal good. Explain the effect of change in income on each, giving suitable examples.

Answer 1

Basis of Difference	Normal Good	Inferior Good
Effect of higher income	The demand for normal goods increases with an increase in the income of the consumer.	The demand for inferior goods decreases with an increase in the income of the consumer.
Income-demand relationship	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	Normal goods have a positive income effect because their demand increases as income rises.	Inferior goods have a negative income effect because their demand decreases as income rises.
Consumer response	Consumers purchase more normal goods when their income increases.	Consumers may shift from inferior goods to better-quality alternatives when their income increases.
Example	Full-cream milk is an example of a normal good if its demand increases with a rise in income.	Toned milk is an example of an inferior good if its demand decreases with a rise in income.

Answer 2

Basis of Difference	Normal good	Inferior good
Meaning	A good whose demand increases as income rises.	A good whose demand decreases as income rises.
Income relationship	Direct relationship between income and demand.	Inverse relationship between income and demand.
Effect of income rise	Demand rises; the demand curve shifts right.	Demand falls; the demand curve shifts left.
Effect of income fall	Demand falls; the demand curve shifts left.	Demand rises; the demand curve shifts right.
Example	A television or full-cream milk may be normal for a consumer.	Toned milk or a black-and-white television may be inferior for a consumer.