In thinking about the difference between what economists refer to as “normal” and “inferior” goods, one may be inclined to think there is a clear dichotomy between the two. Generally speaking, a good would be classified as normal when you consume more of it when your income increases. Conversely a good would be considered to be inferior when you consume less of it when your income increases. It is fairly easy to come up with goods that are generally normal or inferior. For instance, season tickets to a sports team are likely normal goods in that you are more likely to purchase them when your income is higher. Ramen noodles tend to be an inferior good – where you seem to purchase less of them as your income increases (or if you are a college student, more of them by virtue of your low income).
In a price theory course we would explore reasons why a good is normal or inferior, but that is not what I want to bring up here. What I wanted to remind folks is that thinking there is a clear distinction between what is a normal good and an inferior good is not very useful, and for two reasons.
- People have different tastes, values, preferences, interests, objectives, etc. So what is normal to someone might be inferior to someone else, and vice versa. But this concept is not just taste dependent. For instance, for someone that really thinks Ramen noodles are yummy and healthy, perhaps they honestly would purchase more Ramen to eat when their income increased. However, it is also the case that for some people, who do NOT like eating Ramen, the good is still normal! Why? Because they might value Ramen in other uses, and when their income increases they will be better able to satisfy these preferences. It might be the case that you want to build Ramen Castles in your garden, or that you wish to gift a package of Ramen per day to everyone in your neighborhood. You could argue that the good in question is no longer Ramen, but something else, but then I think that confirms the point I am trying to make.
- But where I really think this is interesting is that it is not clear that even for a single person or a single good that it is always inferior. Take some good that is inferior, such as a snuggie, or Zimbabwe currency, or Natty Light beer. It is not hard to imagine that if these things are bad enough, people may, at some point, begin to consume more of them as their income goes up. For example, the value of the Zimbabwe currency has plummeted so dramatically that I am looking for a $100 trillion note on eBay to show to a class. My roommates and I held onto a can of “American” beer that we found outside our door way back in Freshmen year. So it might be the case that such badness can be enshrined as a collectors item, or simply as something to tell a story with in the future.
I don’t just bring this up for economic curiosity. It is not hard to imagine that folks who wish to alter our behavior have these ideas in their heads when they are crafting social policy. I just hope they understand what they are doing.
Evidently Wintercow had a relaxing weekend.
Wintercow has dashed his and his roommates’ credibility by regarding free beer as an inferior good. It has to qualify along with ramen noodles, which my daughter introduced me to, as a basic carbohydrate.
I assume Wintercow was in a blissful, relaxed mood when he finished his post by saying that [the policy makers] know what they are doing. That is a great punchline.