Which type of goods experience a decrease in demand as income increases?

Inferior goods are defined as those for which demand decreases when consumer incomes rise. This counterintuitive characteristic arises from the nature of inferior goods, which typically are lower-quality items or budget alternatives that consumers turn to when their financial situation is tighter. When income increases, individuals tend to shift their preferences towards higher-quality substitutes or more expensive options, resulting in a decline in demand for inferior goods.

For example, consider a scenario where people frequently purchase instant noodles as a low-cost meal option during times of financial strain. When their incomes increase, they are more likely to opt for fresh produce or higher-quality meals instead, leading to a significant drop in the demand for instant noodles.

In contrast, luxury goods and normal goods behave differently with respect to income changes; luxury goods see increased demand as income rises, whereas normal goods maintain stable demand levels but do not experience a decrease. Complementary goods, on the other hand, are products that are consumed together and are not directly affected by changes in income in the same way as inferior goods. This understanding of demand behavior based on income levels is essential in economics, as it helps in analyzing consumption patterns.