Question : Assertion: Cross elasticity of demand is positive when two goods are complements.
Reason: Complementary goods are often consumed together, so an increase in the price of one leads to a decrease in the demand for the other.
Option 1: Both the assertion and reason are correct and related.
Option 2: Both the assertion and reason are correct but not related.
Option 3: The assertion is correct, but the reason is incorrect.
Option 4: The assertion is incorrect, but the reason is correct.
Correct Answer: Both the assertion and reason are correct and related.
Solution : The correct answer is (A) Both the assertion and reason are correct and related.
The assertion states that cross elasticity of demand is positive when two goods are complements. This is correct. Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of another good. When two goods are complements, they are typically consumed together, and an increase in the price of one good leads to a decrease in the demand for the other. This results in a positive cross elasticity of demand, indicating that the goods are complements.
The reason states that complementary goods are often consumed together, so an increase in the price of one leads to a decrease in the demand for the other. This is also correct and provides a valid explanation for why the cross elasticity of demand is positive for complements. Complementary goods have a complementary relationship in consumption, meaning that they are used or consumed together. When the price of one complement increases, consumers tend to buy less of that good, leading to a decrease in the demand for the other complement.
Therefore, both the assertion and reason are correct and related. Complementary goods have a positive cross elasticity of demand because an increase in the price of one complement leads to a decrease in the demand for the other.
Question : Assertion: Inferior goods have a positive income elasticity of demand. Reason: Inferior goods are less desirable as income increases, leading to a decrease in demand.
Question : Assertion: Cross elasticity of demand is positive when two goods are substitutes.
Reason: Substitutes are alternative goods that can be used in place of each other, so an increase in the price of one leads to an increase in demand for the other.
Question : Assertion: The concept of elasticity of demand is only applicable to individual consumers.
Reason: Elasticity of demand measures the responsiveness of quantity demanded to changes in price.
Question : Assertion: The price elasticity of demand for a product can vary along its demand curve.
Reason: The price elasticity of demand depends on the slope and shape of the demand curve.
Question : Assertion: Giffen goods have a negative income elasticity of demand.
Reason: Giffen goods are inferior goods that defy the normal relationship between price and quantity demanded due to income effects.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile