Question

Distinguish between the following: Normal goods and Inferior goods

Answer 1

Normal goods: these are any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. Law of demand applies here.

Cars, diamonds, branded fashions, hi-tech products etc

Inferior goods: is a good whose quantity demanded decreases when consumer income rises. Law of demand does not apply. Income elasticity of demand for these goods becomes negative

Examples are cheaper cars or low quality goods.