Income Elasticity: Normal vs. Inferior Goods

Economics Grades High School 5:56 Video
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Lesson Description

This lesson explores the concepts of normal and inferior goods, focusing on how changes in income affect the demand for different types of products. Students will learn to differentiate between these goods and analyze real-world examples.

Video Resource

Normal and inferior goods | Supply, demand, and market equilibrium | Microeconomics | Khan Academy

Khan Academy

Duration: 5:56
Watch on YouTube

Key Concepts

  • Demand Curve
  • Normal Goods
  • Inferior Goods
  • Income Elasticity of Demand
  • Income Effect

Learning Objectives

  • Define and differentiate between normal and inferior goods.
  • Explain how changes in income affect the demand for normal and inferior goods.
  • Illustrate the shift in the demand curve for normal and inferior goods in response to changes in income.
  • Apply the concepts of normal and inferior goods to real-world scenarios.

Educator Instructions

  • Introduction (5 mins)
    Begin by reviewing the basic demand curve. Ask students to define demand and the law of demand. Briefly discuss factors that can shift the demand curve (excluding price).
  • Video Presentation (10 mins)
    Play the Khan Academy video "Normal and inferior goods | Supply, demand, and market equilibrium | Microeconomics | Khan Academy." Instruct students to take notes on the definitions of normal and inferior goods and how their demand curves shift with changes in income.
  • Concept Explanation & Examples (15 mins)
    Elaborate on the concepts presented in the video. Use additional real-world examples beyond laptops and cheap cars. For example: Normal Goods: Organic food, branded clothing, entertainment. Inferior Goods: Generic brands, public transportation, instant noodles. Discuss why these goods are classified as such. Emphasize that 'inferior' doesn't necessarily mean low quality, but rather that demand decreases as income increases.
  • Graphical Analysis (10 mins)
    Draw demand curves on the board. Show how the demand curve for a normal good shifts to the right when income increases and to the left when income decreases. Conversely, illustrate how the demand curve for an inferior good shifts to the left when income increases and to the right when income decreases. Have students draw their own examples.
  • Class Discussion & Application (10 mins)
    Facilitate a class discussion using the discussion questions below. Encourage students to provide their own examples of normal and inferior goods based on their personal experiences.

Interactive Exercises

  • Goods Classification Game
    Prepare a list of different goods and have students classify them as either normal or inferior goods, justifying their answers. This can be done as a class activity or in small groups.
  • Demand Curve Simulation
    Use an online tool or create a simple spreadsheet to simulate how changes in income affect the demand curve for various goods. Students can manipulate income levels and observe the resulting shifts in the demand curve.

Discussion Questions

  • Can a good be a normal good for one person and an inferior good for another? Explain.
  • Are all cheap products necessarily inferior goods? Why or why not?
  • How might businesses use the concepts of normal and inferior goods in their marketing strategies?
  • Consider the impact of a recession (decrease in income) on the demand for both normal and inferior goods. Provide examples.
  • How does the concept of 'inferior goods' vary across different cultures and economic situations?

Skills Developed

  • Analytical Skills
  • Critical Thinking
  • Economic Reasoning
  • Problem Solving

Multiple Choice Questions

Question 1:

A normal good is one for which demand:

Correct Answer: Increases as income increases.

Question 2:

An inferior good is one for which demand:

Correct Answer: Decreases as income increases.

Question 3:

If income increases, the demand curve for a normal good will shift:

Correct Answer: To the right.

Question 4:

If income decreases, the demand curve for an inferior good will shift:

Correct Answer: To the left.

Question 5:

Which of the following is most likely an example of an inferior good?

Correct Answer: Generic brand cereals.

Question 6:

Which of the following is most likely an example of a normal good?

Correct Answer: Restaurant meals.

Question 7:

The change in demand for a good due to a change in income is called the:

Correct Answer: Income effect.

Question 8:

What happens to the demand for public transportation during an economic boom (increase in income)?

Correct Answer: Decreases.

Question 9:

If the price of a normal good decreases, what happens to the quantity demanded?

Correct Answer: It increases.

Question 10:

Which concept best describes the relationship between income and demand for inferior goods?

Correct Answer: Inverse relationship.

Fill in the Blank Questions

Question 1:

A __________ good is a good for which demand increases as income increases.

Correct Answer: normal

Question 2:

An __________ good is a good for which demand decreases as income increases.

Correct Answer: inferior

Question 3:

When income increases, the demand curve for an inferior good shifts to the __________.

Correct Answer: left

Question 4:

When income decreases, the demand curve for a normal good shifts to the __________.

Correct Answer: left

Question 5:

The change in demand due to a change in income is known as the __________ __________.

Correct Answer: income effect

Question 6:

Generic brands are often considered __________ goods.

Correct Answer: inferior

Question 7:

As people's incomes rise, the demand for __________ goods tends to increase.

Correct Answer: normal

Question 8:

If a product is a normal good, its demand and consumer income have a __________ relationship.

Correct Answer: direct

Question 9:

The demand curve graphically illustrates the relationship between price and __________.

Correct Answer: quantity

Question 10:

The classification of goods as normal or inferior depends on __________ levels.

Correct Answer: income

Educational Standards

SOC.9-12.E.3.1:Analyze how price and non-price factors affect the demand and supply of goods and services available in the marketplace. SOC.9-12.E.1.1:Define and apply basic economic concepts of money supply, scarcity, surplus, choice, opportunity cost, cost/benefit analysis, risk/reward relationship, incentive, disincentive, and trade-off to a variety of economic situations. SOC.9-12.E.4.2:Explain how people’s own self-interest, incentives, and disincentives influence market decisions. SOC.9-12.E.10.3:Explain how changes in supply and demand cause prices to change and in turn, cause buyers and sellers to change, including changes in price of productive resources and technologies used to make the product, profit opportunities available to producers for selling other products, number of sellers in a market, consumer incomes, consumer options, and the number of consumers in a market.

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