The Mises Community
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Inferior Goods

Latest post Wed, May 14 2008 12:17 PM by Len Budney. 1 replies.
  • Wed, May 14 2008 11:38 AM

    • Morty
    • Top 75 Contributor
    • Joined on Thu, Dec 27 2007
    • Posts 113
    • Points 1,975

    Inferior Goods

    http://en.wikipedia.org/wiki/Inferior_goods

    I was wondering if there was any writings explaining this phenomenom of demand increasing for a good as a function of income falling. The idea doesn't sit right with me, but I cannot quite find the fault.

    My first idea was just that you can't buy parts of a unit, so really it is just a prior [richer] situation staying constant but you are forced to change your expression of it. You might prefer, say, a steak over two hamburgers, but when your income falls to the point where you can't afford to purchase the whole steak, you buy two hamburgers instead. But, would this be considered an increase in demand because you actually choose to purchase the hamburgers, or would it just be a manifestation of an earlier, latent demand that wasn't expressed because you chose a substitute good?

    I guess the basic question would be: can you have demand for a good without expressing it in trade? That is, if you choose to buy a substitute, does that mean your demand for the good it replaces is zero at that price? Or demand exist even if it isn't expressed?

    • Post Points: 20
  • Wed, May 14 2008 12:17 PM In reply to

    • Len Budney
    • Top 25 Contributor
      Male
    • Joined on Tue, Feb 26 2008
    • Pittsburgh, PA
    • Posts 494
    • Points 8,915

    Re: Inferior Goods

    The Wikipedia definition certainly suggests that the demand falls for the "inferior" good because it rises for the "superior" alternative. It is reasonable to observe whether demand correlates with income, and it wouldn't be too shocking to see that demand for Busch correlates negatively with income, and demand for Czechvar correlates positively.

    You're right, though, that there's no such thing as undemonstrated preference. We can say that the one drinking the Czechvar preferred it to Busch, and vice versa, but that's all we can say. We can't say what anyone's second choice would be, for example. So it's a methodological error to say that, because fewer rich people prefer Busch, therefore more rich people unprefer Busch. Nor would it be right to imagine one person moving up the income scale and abandoning Busch for Czechvar, since preferences are always time dependent, individual and subjective.

    Psychologically, though, we could discover that a certain rich man used to drink Busch, and stopped when he became rich. So it's understandable why people fall for the temptation of interpreting "inferior goods" in psychological terms. That's invalid from an Austrian viewpoint, but I think mainstream economists do that sort of thing all the time.

    --Len

     

     

    • Post Points: 5
Page 1 of 1 (2 items) | RSS

Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528

Phone: 334.321.2100 · Fax: 334.321.2119

contact@Mises.org | webmaster | AOL-IM MainMises

Mises.org sitemap