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.
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: The assertion is correct, but the reason is incorrect.
Solution : The correct answer is (C) The assertion is correct, but the reason is incorrect.
The assertion states that inferior goods have a positive income elasticity of demand. This is incorrect. Inferior goods have a negative income elasticity of demand. Income elasticity of demand measures the responsiveness of quantity demanded to changes in income. For inferior goods, as income increases, the demand for these goods actually decreases. Therefore, the income elasticity of demand for inferior goods is negative.
The reason provided states that inferior goods are less desirable as income increases, leading to a decrease in demand. This is correct and provides a valid explanation for the behavior of inferior goods. However, it is not directly related to the assertion because the income elasticity of demand for inferior goods is negative, not positive.
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.
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.
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: When the price of a good decrease, its quantity demanded increases. Reason: The law of demand states an inverse relationship between price and quantity demanded.
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