What Happens to Your Shopping When You Get a Raise

Some things you buy more of. Some you quietly stop buying.

3 min readQuick check inside

The big idea

For normal goods, demand rises with income. For inferior goods, it falls, because people trade up.

When income rises, demand for most things goes up. Restaurants, travel and nicer clothes are normal goods. Luxury goods are an extreme version: demand for them grows faster than income does.

But some goods behave differently. As people earn more, they buy less instant ramen, store-brand everything and used clothes. They switch to higher-quality alternatives. Economists call these inferior goods. It isn’t an insult, just a description of how demand responds to income.

Whether something counts as inferior depends on the person. For a student, ramen is a staple. For someone who just got promoted, it might become a once-a-year nostalgia meal.

Spot it in the wild

RecessionsDiscount stores often do better in downturns because their goods behave like inferior goods.
LuxuryWhen incomes boom, demand for luxury goods explodes even faster.
Growing citiesMore people with more income shifts demand for housing right, so prices rise.

Quick check

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Incomes rise across a town and bus ridership falls as people buy cars. For these riders, the bus is…

Demand for bus rides fell as income rose, so for these riders the bus behaves like an inferior good.

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