Question

Differentiate between normal goods and inferior goods.

Hint:

Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand.

Answer 1

\[\begin{array}{rl} \bullet & \text{Normal Goods: Demand for normal goods increases as income rises. For example, branded clothing and luxury goods.} \\ \bullet & \text{Inferior Goods: Demand for inferior goods decreases as income rises because consumers switch to better alternatives. For example, coarse grains and low-cost substitutes.} \\ \end{array}\]