Question : Statement 1: Inferior goods have a negative income elasticity of demand.
Statement 2: When consumer income increases, the demand for inferior goods decreases.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: Inferior goods have a negative income elasticity of demand. This statement is true. Inferior goods are goods for which demand decreases as consumer income increases. The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumer income. For inferior goods, the income elasticity of demand is negative, indicating that as income rises, demand for these goods decreases.
Statement 2: When consumer income increases, the demand for inferior goods decreases. This statement is also true and supports the relationship described in statement 1. As consumer income increases, individuals tend to shift their consumption patterns towards higher-quality goods or substitutes, leading to a decrease in the demand for inferior goods.
Both statements accurately describe the characteristics of inferior goods and the relationship between consumer income and the demand for such goods.
Question : Statement 1: Income effect is negative in case of inferior goods.
Statement 2: In case of inferior goods, fall in income leads to decrease in demand for the good.
Question : Statement 1: A consumer's demand for a luxury good is income elastic.
Statement 2: As the consumer's income increases, their demand for luxury goods increases at a proportionately higher rate.
Question : Statement 1: Cross elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good.
Statement 2: Positive cross elasticity of demand indicates that two goods are substitutes.
Question : Statement 1: The price elasticity of demand for a normal good is always negative.
Statement 2: Normal goods exhibit an inverse relationship between price and quantity demanded.
Question : Statement 1: When the price of a complementary good increases, the demand for the main good decreases.
Statement 2: Complementary goods are consumed together, and an increase in the price of one reduces the affordability and demand for the other.
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