College is an Inferior Good
Financial Freedom | Behavioral Economics
College is an Inferior Good.
This means that as income increases, demand for the good decreases. This does not mean that college is inherently inferior to not going to college. There are two types of goods:
- Superior Goods: Demand for theses goods increases as income increases
- Inferior Goods: Demand for these goods decrease as income increases
Superior Goods
Superior goods are highly valued goods that everyone wants. This would be something like buying a Rolex or eating out at a fancy establishment. The higher your income the more of these products you will purchase.
Sometimes a superior good has zero demand under a certain income level. These goods are simply unattainable due to their high cost relative to income. People work hard to get raises or promotions to be able to purchase more superior goods.
They are called superior goods, because they bring more value to the consumer than the inferior good. That can be for many reasons. Better quality, easy of use, or status.
Inferior Goods
Inferior Goods are the opposite of superior goods. They aren’t highly valued and if people could they would live with less of these goods or none at all. The higher someone’s income is the less of these goods they will purchase. And the more they will buy an alternative superior good. Ramen Noodles are the most classic example of an inferior good. A common meal for a college student.
Like superior goods, inferior goods sometimes have zero demand above a certain income level. These are the inferior goods that are strictly purchased due to budgeting constraints. These goods bring very little value to peoples lives, as no one would purchase them if everyone had a high enough income.
College
So how is college an inferior good? Easy, we simply need to look at why most people purchase a degree (go to college). It is so they can make more money in the future. Yes, some people go to university for educational purposes. Or to go to learn a skill. But the majority of people right now go because it is basically required to make more money in your career. Good luck finding a job that pays more than $50,000 without a degree.
So if people purchase a degree to increase future income that means if their incomes were higher they would purchase less degrees. Or not go to college. An increase in income would decrease the demand for going to get higher education. This makes college an inferior good.
For those that go to college for the parties and friends, they would still purchase a degree. But it wouldn’t be for the sake of increased future income but for a separate reason. This means their income would not change their behavior on whether or not to go to a university.
For those who can not afford college an increase in income would likely increase the demand for them to go. Making college a superior good to them. But keep the thought process going. If we keep increasing their income there would be less of a reason to go to college thus a decrease in demand. Making it once again an inferior good.
This leaves us with two groups. Those who want to go to college for the education, parties, and friends. And those who go because of the increase in future income. I believe that with an increase in income we would see less people go to college and more people choosing to live their life without it. This would make college an inferior good.