8.9 Normal and Inferior Goods

Lastly, let’s consider what happens to consumer behavior as they get more money.

If an increase in income causes a consumer to buy more of a good, we say that good is a “normal good.” Conversely, if an increase in income causes a consumer to buy less of a good, we say that good is an “inferior good.”

How do we see this represented using offer curves? Well, if both goods are normal, then an increase in income will cause them to consume more of both goods; so the income offer curve (IOC) will be upward-sloping. However, if one of the goods is inferior, then an increase in income will cause them to consume more of the normal good, but less of the inferior good; so the IOC will have a negative slope.

Every functional form we’ll see will have both goods be normal good. However, you should be able to illustrate what would happen in the case of an inferior good with a (non-precisely mathematical) sketch. I’ll provide one of those during class; I haven’t yet figured out how to get the computer to draw one. :)