Good X is called a normal good if when consumers' incomes change, the demand for good X changes in the same direction. Examples include many things, including baseball hats, VCRs, snakeskin boots, etc.
Suppose baseball hats are a normal good. If incomes of consumers were to rise, the demand for baseball hats would increase (shift to the right).
Suppose steak dinners are a normal good. If incomes of consumers were to fall, there would be a decrease in the demand for steak dinners (shift to the left).
The intuition on normal goods is easy. Most everything you are likely to think of is a normal good. As your income increases, you will want to buy more of most goods, thus increasing your demand for these goods. As your income falls, you will cut back, thus decreasing your demand for these goods.
Good X is called an inferior good if when consumers' incomes change, the demand for good X changes in the opposite direction. Examples include SPAM, generic cornflakes, Mad Dog 2020, Boone's Wine, K-Mart tools, Yugos, used syringes, cafeteria food, etc.
If Mad Dog is an inferior good, an increase in the income of consumers will lead to a decrease in the demand for Mad Dog.
Suppose SPAM is an inferior good, a decrease in the income of consumers will lead to a decrease an increase in the demand for SPAM.
Inferior goods are sometimes counterintuitive, but think of these things as things you stop (or cut back) purchasing as you have more income, or on the other hand, things you begin to purchase as you have lower income levels.
• Non-market activities - mom cooking meals, you mowing the lawn, Tony Micelli don't get counted,
but if you pay mom to cook your meals, pay your neighbor to mow the lawn, it gets counted
• Illegal and underground activities - crack, counterfeit NBA championship T-shirts
• Population - perhaps we should use per-capita real GDP (real GDP divided by population)
• Some externalities - real GDP is not adjusted downward for pollution, toxic waste
• Replacements or maintenance activities - replacing a roof will increase real GDP but doesn't make us
better off; we had a roof before, and have a roof after
• Flows vs. Stocks - a discovery of a large oil reserve makes us much better off, but this doesn't
show up in GDP until the oil is pumped out and turned into gas, burned, etc.
• Ignores the distribution of income - don't have much to say about what distribution of income is
"best", but some people have different ideas than others