A type of good for which demand declines as the level of income or real GDP in the economy increases. This occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. An inferior good is the opposite of a normal good, which experiences an increase in demand along with increases in the income level.
Inferior goods can be
viewed as anything a consumer would demand less of if they had a higher level
of real income. An example of an inferior good is public transportation. When
consumers have less wealth, they may forgo using their own forms of private
transportation in order to cut down costs (car insurance, gas and other car
upkeep costs) and instead opt to use a less expensive form of transportation
(bus pass).
Good Y is a normal good since the
amount purchased increases from Y1 to Y2 as the budget constraint shifts from
BC1 to the higher income BC2. Good X is an inferior good since the amount
bought decreases from X1 to X2 as income increases.