Inferior goods

Bob, a student at the University of Yokufunda and a keen wine drinker, receives an increase in the amount of pocket money he gets from his dad. Instead of buying wine packaged in boxes (box wine), he now buys bottled wine with cork stoppers. From his behaviour, we know that Bob regards box wines as a(n) _________ good.

Bob regards box wine as an inferior good since his demand for box wine decreased when his income increased.

For a few goods, an increase in income means that one might purchase less of the good; for example, individuals with a higher income might buy fewer fried chicken pieces, because they are buying more steak instead, or those with a higher income might buy less wine and more craft beer. When the income elasticity of demand is negative, the good is called an inferior good.

For an inferior good – that is, when the income elasticity of demand is negative – a higher level of income would cause the demand curve for that good to shift to the left. Again, how much it shifts depends on how large the (negative) income elasticity is.