Tuesday, January 10, 2012

What's inferior? Not much, according to the Reserve Bank

Wikipedia defines an inferior good as...

"...a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed."

Get it? The more your income, the less you want this good -- in absolute terms, not just proportional terms.

So which goods are inferior, in Australia?

The RBA has worked it out, using the ABS household expenditure and income surveys:

"Less than 1 per cent of total spending was on goods
and services that were estimated to be inferior
goods in 2009/10. Given that many of these have
elasticities only slightly less than zero, it is difficult to
be definitive.

However, based on the data from the
2003/04 and 2009/10 HES, examples of goods which
may be classified as inferior goods are powdered
milk, TV rental
and tobacco other than cigarettes."

I can think of others: Cask wine, International Roast.

Are there others?

Insights From the Household Expenditure Survey

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