Normal Goods: The quantity of a good that the consumer demands can increase or decrease with the rise in income depending on the nature of the good. For most goods, the quantity that a consumer chooses increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods. Thus, a consumer’s demand for a normal good moves in the same direction as the income of the consumer. For example, clothing is a normal good. As income increases, the demand for clothing increases.

Inferior Goods: The goods for which the demand moves in the opposite direction of the income of the consumer are called inferior goods. As the income of the consumer increases, the demand for an inferior good falls, and as the income decreases, the demand for an inferior good rises. Examples of inferior goods include low quality food items like coarse cereals. As the income increases, the consumer reduces its demand for coarse cereals and instead shifts its demand towards superior quality cereals.