In consumer theory, an inferior good is one for which demand decreases when income rises, unlike the more common normal goods, for which the opposite is observed. Inferiority, in this sense, is an observable fact rather than a statement about the quality of the good.

National bus service, such as that provided by Greyhound Lines, is an example of an inferior good. This form of transport is cheaper than air or rail travel, but more time-consuming. When money is constricted in comparison to time, bus services become more palatable, but when money is abundant and time, thus, worth more of it, more rapid transport is preferred.

Depending on a consumer or market's indifference curves, the amount of a good bought can either increase, decrease, or stay the same when income increases. In the diagram below, good Y is a normal good since the amount purchased increases from Y1 to Y2 as the budget constraint shifts from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases.

Giffen goods

A special type of inferior good may exist known as the Giffen good, which would disobey the "law of demand". This would have to be a good that is such a large proportion of a person or market's consumption that the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope upward, indicating negative elasticity.