What defines an inferior good?

An inferior good is characterized by the relationship between its demand and consumer income. Specifically, an inferior good is one whose demand increases when consumer incomes fall. This behavior is rooted in the concepts of consumer choice and substitution. When people have lower incomes, they often turn to cheaper alternatives or less expensive products that fit their reduced budgets, leading to an increase in demand for these inferior goods.

For example, if a consumer experiences a drop in income, they may buy more generic brands instead of premium ones, which qualifies those generic brands as inferior goods. This is reflective of their role as substitutes for more expensive options that consumers may normally prefer when their financial situation improves. This understanding of consumer behavior and income elasticity is crucial in economics, as it highlights how demand for certain goods is inversely related to consumer purchasing power.