Superior Goods

See: Inferior Goods.

In casual conversation, you might say that Reese’s is a superior candy to Baby Ruth, or that broccoli is an inferior vegetable. In economics, superior and inferior goods aren’t yin and yang.

Superior goods, also known as luxury goods, are actually a sub-set of “normal goods.” Normal goods are goods whose demand goes up when incomes go up. Normal goods in L.A. include A/C, kombucha, and designer clothes. Normal goods in New York City include flannel button-ups, noise-canceling headphones, and pizza. The more money people make, they more they’ll be spending on these goods.

If we’re getting technical, normal goods have a positive income elasticity of demand. Elasticity measures how sensitive we are to goods when they change in price, or when our buying-power changes. The more elastic something this, the more sensitive we are to it. The more inelastic something is, the less sensitive we are to it. Normal goods have a positive elasticity of demand, meaning we’ll want more normal goods as our buying-power rises.

Superior goods are a type of normal good. Superior goods, like normal goods, have an income elasticity of demand that’s greater than zero. So what makes a superior good a superior good? A superior good has an income elasticity of demand that’s not only greater than zero...it’s greater than one. Superior goods are just extreme versions of normal goods. The increase in demand for superior goods is greater than for normal goods given a certain percent increase in income. When people are rolling in dough, they have more money to play with, making their demand more elastic. They have so much money that the basics are covered, so they can spend a higher proportion of their income on luxurious things. Superior goods are things like fancy TVs, fancy cars, fancy clothes...basically, anything fancy.

Okay, so we have normal goods, which have a positive income elasticity of demand, and superior goods, which are extreme normal goods, with an income elasticity over one. We also have inferior goods. While normal goods have a positive income elasticity of demand, inferior goods have a negative income elasticity of demand.

Inferior goods are things people want less of as their incomes rise. As people’s buying-power increases, they’ll usually start substituting inferior goods for normal goods. As you start making more money, you’ll probably swap your inferior McDonald’s coffee for Starbucks, a normal good. You might switch from riding the bus to driving a car, another substitution of an inferior good for a normal good. The more money you make, the less you’ll demand inferior goods. As you climb the corporate ladder, you’ll forget inferior goods altogether...like they were never a part of your life.

But don’t worry...there’s a horseshoe theory for inferior and superior goods. For instance, if you find yourself in your corner office overlooking the city, missing the good old days when you had duct-taped shoes (an inferior good), there’s a superior good for that. You can buy a Superstar Taped Sneaker, a superior good at $530, and then reminisce about the old inferior-good days.

Yeah...there’s a luxury market for everything nowadays.