It is a maxim in economics that “more is preferred to less”. More money, more square feet of housing, more clothing, more of pretty much anything the consumer might consider a ‘good.’ The term good covers the whole array of products and services that consumers find attractive and want to acquire more of. More of a good gives you more utility, satisfaction, or happiness, than having less of a good, so everything else equal, when talking about goods, more is preferred to less.
The opinion that something is attractive, and so a ‘good,’ varies with individuals and with circumstances. Consumers who dislike fried chicken typically won’t feel better off if they are served more fried chicken meals per month. They are likely to feel worse off, in fact. But hurricane survivors living in temporary shelter might prefer fried chicken meals to no meals at all. Thus what was a ‘bad’ becomes a good. More desperate examples, like starvation vs. eating bugs under survival conditions, show that even something very distasteful can become a good, given circumstances. There are very few absolutes.
Under ordinary conditions, ‘bads’ are things we do not want to acquire more of. Some markets exist primarily to help us avoid bads. We can buy a fence to keep deer out of the garden, for example, hire a security guard to patrol our business, or buy a weapon for self defense. Each of these measures—the fence, the guard, the weapon—is a good. Its market function is to help us avoid non-market bads.
Because there are few absolutes, however, goods sometimes do become ‘bads.’ If green is my favorite color, I might choose to wear it every day. If green becomes associated with a violent gang, or a hate organization, though, I will avoid purchasing or wearing anything that color. Even though I still like green in the abstract, green has become a ‘bad’ for me, and I’d prefer to avoid it.
There are real examples of ‘good’-‘bad’ switching. One example is the current car rental market. Car rental companies customarily price rentals by size and degree of luxury. They often offer their best customers free upgrades, and move them into more luxurious models. The assumption that ‘more is preferred to less,’ that customers want the added space, comfort, and luxury, has been a popular promotional technique, one that accurately reflected consumer tastes. Until recently.
In the face of much higher gasoline prices, many consumers are changing their preference for rental car size. Customers are reserving more of the smaller, more fuel efficient vehicles. The gas-guzzler upgrade is no longer welcome, or viewed as a ‘good’ by many consumers, given the higher operating costs of bigger, heavier, more luxurious cars. In this instance, car rental companies are finding that less car is a consumer good, and more car is a consumer bad. It appears, paradoxically, that less is preferred to more.
How could this happen? Because of reversed consumer preferences, rental car companies have too few economy cars in their fleets for the current market, and by implication, too many gas-guzzling larger cars. A change in the rental fleet, substituting more economy models for big vehicles, is costly and time-consuming. The alternative—pricing the more preferred small cars above the less preferred big cars—would be unpopular, though an immediate and correct solution. Instead, many consumers are finding that the economy car they reserved has been upgraded to a more expensive operating model—for free, but involuntarily. This third option is the least satisfactory for everyone.
Markets are fully capable of sorting out changes in preferences. Higher rental rates for small cars vs. large cars would reflect the fact that the Ford Focus, for example, is more urgently desired than the Ford Expedition, at least in a market where gasoline is hovering around $3.00 per gallon. Consumers could refuse bigger cars, if they are willing to pay a premium. Pricing based on demand would also mean that consumers who reserve an economy model will be more likely to get an economy model, rather than arrive at the rental counter to find that the company has “run out” of economy cars, and is assigning them a luxury-sized auto.
Do consumers really prefer less to more? Everything else equal, no. But circumstances may change a consumer’s real preference for a particular good, and market prices should reflect that change. At some price, customers can be enticed to rent a vehicle that averages a few miles per gallon. The same goes for customers who most urgently want the 50+ miles per gallon model. Coordinating desires depends on supply and demand, which really (and always) means it depends on prices.