Definition
An inferior good is a product or service that people buy less of as their income goes up. Usually, more money means buying more stuff. But with some goods, people switch to better alternatives as they get more comfortable financially, and their spending on the original item naturally drops.
Why do you eat less ramen when your wallet gets fatter?
When you're a broke college student, you often get by on convenience store cup noodles and a quick snack like a rice triangle (triangle kimbap). It's cheap, fast, and fills you up for very little money.
Then you land a job and start getting a steady paycheck. Slowly, your dinner table changes. You eat fewer cup noodles and more fresh salads or hot, home-style meals at a restaurant. In economics, a product you buy less of when your income rises is called an inferior good.
Most things you run into every day are 'normal goods.' The more you earn, the more you buy. Get a raise, and you shop for clothes more often and eat out more. Inferior goods are different. Your income and your consumption move in opposite directions.
It's not about bad quality
The word 'inferior' makes it easy to assume the product is low quality or defective. But in economics, the name has nothing to do with judging a product's quality or value.
The label depends only on the relationship between income and how much you buy. Take the subway or city bus. They're safe, convenient, and great ways to get around. But if your income jumps and you buy a car, you might ride public transit less. Compared with owning a car, public transit acts like an inferior good.
Whether something is an inferior good depends on people's personal preferences and on whether a better substitute (something you can buy instead) exists. The same item can be a normal good for one person and an inferior good for another, depending on taste, finances, and social surroundings.
A bit more precisely
Economists measure how much the quantity demanded of a product changes when income rises by 1%. This is called the 'income elasticity of demand.' For ordinary normal goods, where you buy more as you earn more, this number is positive (+).
For inferior goods, on the other hand, you buy less as income rises, so the income elasticity of demand is negative (-). In effect, a fatter wallet pushes demand for that product away.
Going a little deeper, there's an extreme exception: goods that people buy less of even when their price falls. These are called 'Giffen goods,' named after the British economist Robert Giffen. But Giffen goods are rare. They've only been seen under very limited conditions, like a staple grain for very poor households. Most inferior goods still follow the usual market rule: when the price falls, demand rises.
Common misconceptions
An inferior good is a low-quality or defective product.
The term has nothing to do with quality. It's just an economics term for a product that consumers buy less of when their income rises, because they move on to alternatives they prefer.
Where you meet it
A office worker whose income has grown skips the convenience store lunch box and eats at a proper restaurant, so convenience store lunch box spending drops.
As their finances improve, a household buys new furniture instead of secondhand furniture, so secondhand furniture consumption goes down.
In one sentence
An inferior good isn't a bad product. It's something you buy less of as your income rises, because you find better alternatives.