A Level Economics AQA Practice Exam

How is an inferior good defined in economics?

1. A good for which demand increases as income rises

2. A good for which demand decreases as income increases

3. A good that always has high demand

4. A good that consumers prefer regardless of income

The correct answer is: A good for which demand decreases as income increases

An inferior good is defined in economics as a good for which demand decreases as consumer income rises. This relationship stems from the fact that as individuals have more income, they tend to purchase less of these goods and instead opt for higher-quality or more desirable alternatives, often referred to as normal goods. Typically, inferior goods are associated with lower-quality or more budget-friendly options that consumers prefer when their financial situation is constrained. For instance, as people's incomes increase, they might switch from shopping at discount stores to buying premium brands, thus reducing the demand for inferior goods. The other definitions do not accurately capture the essence of inferior goods. Goods for which demand increases as income rises are classified as normal goods. Goods that always have high demand do not specify a relationship with income and could describe various types of goods, not specifically inferior ones. Lastly, goods preferred regardless of income could refer to luxury items or necessities, but this definition doesn’t reflect the behavior seen with inferior goods, where the preference shifts inversely with income changes.