McDonald’s reported record profits of $27 billion in 2011. Hooray, evidence of a global economic comeback, right? Not so fast.
For most people, McDonald’s isn’t necessarily their food of choice. Sure, there are some people who voluntarily eat at McDonald’s very often. But overall, the food at McDonald’s is low quality and extremely unhealthy. In economic terms, it’s what we call an inferior good.
Usually when we think of goods and services, we are thinking of normal goods. Normal goods are items for which demand increases when income increases, and vice versa. Sports cars are a normal good. When people make more money, they are most likely to buy sports cars.
Inferior goods run the opposite way. When people’s income overall decreases, demand for inferior goods increases. This is because people are substituting the inferior good for something that they would rather have, but cannot afford. Case in point — low quality food from McDonald’s.
Food from McDonald’s is probably not at the top of most peoples’ menu of choice. However, as real income (not actual money in pockets, mind you, but rather real purchasing power) decreases as it has over the past several years, we should expect demand for inferior goods like McDonald’s to increase. Don’t be surprised if at the end of fiscal year 2012, we find that McDonald’s profits have increased even more.Published in