Enjoying Movies: From Rental to Theater

What does the scenario of going from renting movies to going to the movie theater demonstrate?

Is rental movies considered an inferior good or a normal good in this case?

Answer:

Rental movies are considered as inferior goods in this scenario.

Consumers tend to adjust their spending habits based on changes in their income level. In the scenario provided, the individual started out by renting movies due to affordability but then switched to going to the movie theater more frequently after receiving a promotion and experiencing a rise in income.

This change in behavior reflects the concept of inferior goods. Inferior goods are products or services that consumers will consume less of when their income increases, as they opt for higher-quality or more expensive alternatives. In this case, the individual viewed rental movies as an inferior good because with a higher income, they chose to spend more on the experience of going to the movie theater.

On the other hand, normal goods are items for which demand increases as income rises. In this scenario, movies at the movie theater are considered a normal good, as the individual chose to allocate more of their income towards this form of entertainment with the increase in their earnings.

Understanding the distinction between inferior goods, normal goods, and necessity goods can provide insights into consumer behavior and preferences based on income levels.