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Econ: What are Superior v. Inferior Goods? 4 Views


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What are Superior v. Inferior Goods? Superior goods are purchased more as income rises and inferior goods are purchased more as income decreases. These concepts can also be thought of as what wealthy people buy versus what lower income people buy. For example, while a Starbucks latte might be a superior good, a 7-Eleven cup of coffee would be an inferior good.

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Transcript

00:00

And finance Allah shmoop What are superior and inferior goods

00:08

All right Well in casual conversation you might say that

00:11

Reese is is a superior candy bar Teo the Baby

00:15

Ruth Or that broccoli is an inferior vegetable Teo pretty

00:19

much every other one in economic superior and inferior goods

00:22

aren't union yang Superior goods also known as luxury goods

00:26

are actually a subtype of normal goods Well normal goods

00:30

or goods whose demand goes up when incomes go up

00:34

Yeah like normal normal goods in L A include air

00:37

conditioners and kombucha and designer clothes Normal goods in New

00:41

York City include flannel button ups noise cancelling headphones and

00:45

of course pizza The more money people make the more

00:48

they'LL be spending on these goods if they're getting technical

00:50

while normal goods have a positive income Elasticity of demand

00:55

elasticity measures how sensitive we are two goods when they

00:59

change in price or when our buying power changes The

01:02

more elastic something is the more sensitive we are to

01:05

it The more any elastic something is the less sensitive

01:09

we are to it Well normal goods have a positive

01:11

elasticity of demand meaning will want more normal goods as

01:15

our buying power rises Superior goods or luxury goods are

01:18

a type of normal Good superior goods like normal goods

01:22

have an incoming elasticity of demand that's greater than zero

01:25

So what makes a superior good a superior good Well

01:28

a superior good has an income elasticity of demand That's

01:31

not on ly greater than zero It's greater than one

01:35

Superior goods are just extreme versions of normal goods The

01:39

increase in demand for superior goods is greater than for

01:42

normal goods given a certain percent increase in income When

01:45

people are rolling in dough they have more money to

01:48

play with making their demand more any elastic They have

01:51

so much money that the basics are covered so they

01:53

can spend a higher proportion of their income on luxurious

01:56

things Superior goods are things like fancy TVs fancy cars

02:01

fancy clothes basically anything fancy Okay so we have the

02:04

normal goods Remember which have a positive income elasticity of

02:08

demand and superior goods also known as luxury goods which

02:12

are extreme normal goods with an incoming last the city

02:15

over one We also have inferior goods which is the

02:18

gin in the yang of normal goods while normal goods

02:21

have a positive income Elasticity of demand in cheerier goods

02:24

have a negative income Elasticity of demand will What is

02:27

all this means means inferior goods are things people want

02:30

less of as their income arises as people's buying power

02:34

increases well they'LL usually start substituting inferior goods for normal

02:39

ones As you start making more money while you'LL probably

02:42

swap your inferior McDonald's coffee for Starbucks a normal good

02:46

you might switch from riding the boss to driving a

02:48

car Another substitution of an inferior good for a normal

02:51

good The more money you make the last you'LL demand

02:54

inferior goods As you climb the corporate ladder you'LL forget

02:57

inferior goods all together like they were never a part

03:00

of your life But don't worry There's a horseshoe theory

03:03

for inferior and superior goods For instance if you find

03:06

yourself in your corner office overlooking the city missing the

03:09

good old days when you had duct tape shoes and

03:11

inferior good very inferior Good There's a superior good for

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that right Like you Khun by this superstar taped sneaker

03:18

a superior good at five hundred thirty dollars and then

03:21

reminisce about well the old inferior good days Yeah there's

03:25

a luxury market for everything nowadays Yeah you've seen it

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