Economics, 3rd Edition

An Inferior Good

A good is an inferior good if the 

consumer buys less of it when his 

income rises. Here cola is an inferior 

good: when the consumer’s income 

increases and the budget constraint 

shifts outward, the consumer buys 

more pizza but less cola.

A I f i

G

d

FIGURE 5.13

0

Quantity

of cola

Quantity

of pizza

3. ... but cola

    consumption

    falls, making

    cola an

    inferior good.

1. When an increase in income

   shifts the budget constraint

   outward ...

Initial

optimum

New optimum

Initial

budget

constraint

2. ... pizza consumption rises,

    making pizza a normal good ...

I

1

I

2

New budget constraint

---

118  PART 2  SUPPLY AND DEMAND: HOW MARKETS WORK

buy twice as many litres of cola than before but the same amount of pizza. Figure 5.14 shows that point 

A stays the same (100 pizzas). Yet if the consumer spends his entire income of 

€1,000 on cola, he can 

now buy 1,000 rather than only 500 litres. Thus, the end point of the budget constraint pivots outwards 

from point B to point C.

The pivoting of the budget constraint changes its slope. Because the price of cola has fallen to 

€1 from 

€2, while the price of pizza has remained €10, the consumer can now trade a pizza for 10 rather than 5 

litres of cola. As a result, the new budget constraint is more steeply sloped.