What happens to the demand for inferior goods when income rises?

When income rises, the demand for inferior goods decreases. Inferior goods are defined as those goods for which demand falls as consumer incomes increase. This occurs because individuals typically substitute inferior goods with more desirable alternatives known as normal goods or superior goods when they have more income. For instance, a family may initially purchase a low-cost brand of cereal due to budget constraints, but once their income rises, they might switch to a more expensive, higher-quality brand.

This relationship highlights a fundamental principle in economics regarding how consumer preferences shift in response to changes in their economic situation. Therefore, as income increases, consumers are more likely to opt for goods that they perceive as being of higher quality or value, resulting in decreased demand for those items categorized as inferior.