Wednesday, July 16, 2008

Inferiority Complex

Upon grading principles of microeconomics homework I come across too many students (ie more zero) incorrectly identify an inferior good as a low quality good. This is emphatically not always true (though a correlation probably exists). An inferior good sees fewer buyers as incomes rise. Here's a few examples of inferior goods that are not low quality:

-Bikes. There's a lot of high quality bikes out there, but, as China reminds us, increasing incomes sees fewer bikes bought.

-Personal education. Most of the time people go to school to get a degree so they can earn more money. Of course if you're already making a lot you're less likely to hit the books. Bill Gates never did finish his undergraduate degree but I doubt I'll see him in class. (Note this is personal education. The opposite it true for the education of, say, your kids.)

-Studio apartments. There's nothing inherently low quality about a studio apartment. Indeed the amenties and location could be tremdously nice (in the middle of downtown, hardwood floors, new appliances).

Quality is a relative concept, of course. This makes refering to "low quality" items in an absolute context sloppy thinking. A 42-inch television is low quality compared to a 50-inch but no one's saying the 42-inch is an inferior good. An inferior good is not "good" or "bad."

1 comment:

Jenny said...

Yeah, use of bikes (along with public transportation) tend to decline with income. Note about personal education (the example I usually bring up in class): Trust-fund babies are better examples than self-made entrepreneurs (who, hypothetically, could've initially made more money with a degree).