How do we distinguish between Normal goods and Inferior goods

Answer :

Normal goods are those in case of which there is a positive relationship between income and quantity demanded.Quantity demanded increases in response to increase in consumer’s income and quantity demanded fall with fall in consumer’s income.

Inferior goods are those in case of which there is a negative or inverse relationship between income and quantity demanded. Quantity demanded decreases in response to increase in consumer’s income and quantity demanded rise with fall in consumer’s income.

For example, the demand for an inferior food like maize may decrease when income of the consumer increases beyond a particular level as he may substitute maize by a superior food like wheat or rice.

Briefly, in case of normal goods income effect is positive, while in case of inferior goods income effect is negative.

Also read factors affecting demand

Factors affecting demand

We discuss below some of the important determinants of demand for a commodity:

1)  Price of the commodity:
Normally there is an inverse relationship between the price of the commodity and the quantity demanded this means that lower the price of the commodity, larger is the quantity demanded and higher the price, lesser is the quantity demanded.
Price- rises ,   demand- falls
Price-falls   ,   demand- rises

2)Income of the consumer :
Income determines the purchasing of the consumer. Generally there is a direct relationship between the income of the consumer and his demand for a product.
Income- rises  ,    demand- rises.

However, this may not always be the case. Let see the relation between income and three different types of commodities consumed.

a) Normal goods: normal goods are those goods the demand for which increases with increase in income of the consumers and decreases with fall in income for example demand for clothes, refrigerator, television, cars etc.

 Effect of change in consumer’s income on normal goods

normal goods

The above figure shows the income of the consumer plotted on y-axis and the quantity purchased of a commodity is plotted on x-axis. The nature of relation between income and demand for normal goods is shown by OA curve.