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Inferior Good: 

An inferior good is one for which the consumer demand falls as consumer incomes rise. In other words, an inferior good is a good whose consumption decreases as a person’s income increases. . Examples of inferior good include tinned meat, frozen vegetables, margarine, cigarettes, etc. Inferior goods have a negative income elasticity of demand, and are in direct contrast to a normal good, the consumption of which increases as incomes rise. This means that sales inferior goods are likely to be counter-cyclical, making the companies that produce them also counter-cyclical, or at least relatively resistant to economic cycles. A rare and extreme type of inferior good, a Giffen good, is subject to such a strong income effect that consumption increases with higher prices. True inferior goods are not very common, but particular goods and services may benefit from some customers who buy more as incomes fall, even though not all customers may do so. An example of this kind of behaviour would be a chain of cheap pubs which gains customers during a recession as people switch from more expensive options for going out (offsetting revenues lost as other customers spend less).

Inferior goods have a negative income elasticity of demand: the demand for the good falls as income rises. When the economy is in recession, the demand for inferior products might actually increase (depending on the severity of any change in income and also the absolute co-efficient of income elasticity of demand). For example if the income elasticity of demand for frozen vegetables is -0.3, then a 5% fall in the average real incomes of consumers might lead to a 1.5% fall in the total demand for cigarettes (ceteris paribus). So when the income elasticity of demand is less than zero, then the good is considered to be an inferior Good and is negative income inelastic.




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