Why do consumers switch from renting movies to going to the movie theater when their income rises?

Understanding Inferior Goods

Inferior goods are characterized by a negative income elasticity of demand, meaning that as consumers' income increases, their demand for these goods decreases. Despite the negative connotation of the term "inferior," it is important to note that inferior goods are not necessarily of lower quality. Instead, they are products that consumers perceive as less desirable once they have the ability to afford better options.

Consumer Behavior and Inferior Goods

Consumer behavior is significantly influenced by changes in income levels. When consumers' income rises, they tend to allocate more of their budget to regular goods, which are products for which demand increases as income levels rise. In contrast, the demand for inferior goods decreases as consumer income grows.

For example, in the scenario provided, when the individual receives a promotion and their income rises, they choose to go to the movie theater more frequently instead of renting movies. This shift in preference demonstrates the concept of inferior goods and their impact on consumer behavior.