Difference between Normal Goods, Inferior Goods, and Giffen Goods

Last Updated : 20 Jul, 2023

Normal Goods, Inferior Goods, and Giffen Goods are three types of goods with different effects on the demand for the commodity when the income of the consumer or the price of the commodity changes.

What are Normal Goods?

The goods whose demand increases when there is an increase in the income of consumer are known as Normal Goods. These include the commodities which we usually purchase. Besides, in general, consumers purchase more normal goods when their income increases and purchase less of these goods when their income falls. For example, if demand for Refrigerator increases with an increase in income, then the Refrigerator will be said to be a normal good. The income effect of normal goods is positive.

What are Inferior Goods?

The goods whose demand reduces when there is an increase in the income of consumer are known as Inferior Goods. In simple terms, there exists an inverse relationship between the consumer's income and demand for inferior goods. Therefore, the income effect of inferior goods is negative. Consumers usually purchase inferior goods because they are essential for their life; like, coarse grains, etc. For example, if the consumer's income increases and he prefers to replace his single-door refrigerator with French Door Style Refrigerator, then the demand for Single Door Refrigerator will fall. Also, in this case, the Single Door Refrigerator is the Inferior Good.

What are Giffen Goods?

The goods whose demand increases even when there is an increase in the price of the commodity are known as Giffen Goods. The income effect of Giffen goods is negative. In simple terms, Giffen goods are the rare form of inferior goods for which there is no substitute. For example, even though the price of rice increases, the consumer will have to cut short on his other expenses and have to purchase rice, increasing the demand for rice.

Difference between Normal Goods, Inferior Goods, and Giffen Goods

Basis	Normal Goods	Inferior Goods	Giffen Goods
Meaning	These are the goods whose demand increases when there is an increase in the income of consumer.	These are the goods whose demand reduces when there is an increase in the income of consumer.	These are the goods whose demand increases even when there is an increase in the price of the commodity.
Relation	There is a direct relationship between the income of the consumer and demand for normal goods.	There is an inverse relationship between the income of the consumer and demand for inferior goods.	There is a direct relationship between the price of the commodity and demand for Giffen goods.
Income Effect	The income effect of normal goods is positive.	The income effect of inferior goods is negative.	The income effect of Giffen goods is negative.
Substitution Effect	The substitution effect of normal goods is positive.	The substitution effect of inferior goods is positive.	The substitution effect of Giffen goods is positive.
Price Effect	The price effect for normal goods is positive because both the income and substitution effect, in this case, is positive. Therefore, with a fall in price, its demand will rise.	The price effect for inferior goods is positive because the positive substitution effect for it is stronger than the negative income effect. Therefore, with a fall in price, its demand will rise.	The price effect for Giffen goods is negative because the negative income effect for it is stronger than the positive substitution effect. Therefore, with a fall in price, its demand will also fall.
Law of Demand	Normal Goods follow the Law of Demand. It means that there is an inverse relationship between the price of normal goods and its quantity demanded.	Inferior Goods may or may not follow the Law of Demand. It means that there may or may not be an inverse relationship between the price of inferior goods and its quantity demanded.	Giffen Goods does not follow the Law of Demand. It means that even though the price of the commodity increases, the demand for Giffen goods will also increase.
Example	Garlic Butter is a normal good, and its demand increases when there is an increase in income.	Plain Butter is an inferior good, and its demand decreases when there is an increase in income.	Potato is a Giffen good because it has no substitute, and its demand increases even when its price rises.

J

Improve

Article Tags :

Explore