What is an example of an inferior good?

An inferior good is defined as a type of good for which demand increases when consumer incomes fall, and demand decreases when incomes rise. This behavior is generally due to the fact that consumers tend to prefer higher-quality or more expensive alternatives when they have more disposable income.

Used cars exemplify an inferior good because when individuals experience a decrease in income, they may opt to purchase used cars instead of new ones, which are often more expensive. This choice reflects their need to adjust their spending to fit their reduced financial resources. As incomes rise, consumers are more likely to choose new cars over used ones, leading to a decrease in the demand for used cars.

In contrast, items like clothing, restaurant meals, and vacations are typically considered normal goods. For these goods, as consumer incomes rise, the demand for them also increases, reflecting a general desire for higher quality or more luxurious options as purchasing power improves.