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.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Correct Answer: Statement 1 is false, and statement 2 is true.
Solution : The correct answer is (b) Option B: Statement 1 is false, and statement 2 is true.
Statement 1 is false. A luxury good is typically considered to have an income elasticity of demand greater than 1 , indicating that the demand for luxury goods is income elastic. However, it's important to note that not all luxury goods have income elastic demand. Some luxury goods may have income inelastic demand, depending on consumer preferences and income levels.
Statement 2 is true. As the consumer's income increases, their demand for luxury goods tends to increase at a proportionately higher rate. This is because luxury goods are often considered to be income-responsive and consumers with higher incomes tend to have a greater ability to afford and desire luxury goods.
Question : Assertion: The consumer's demand for a luxury good is income elastic.
Reason: As the consumer's income increases, their demand for luxury goods increases at a proportionately higher rate.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
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.
Question : Statement 1: A consumer's demand for a good is income inelastic.
Statement 2: A change in the consumer's income does not significantly affect their demand for the good.
Question : Statement 1: A consumer's demand curve for normal goods slopes downward.
Statement 2: As the price of a normal good decrease, the consumer's quantity demanded of the good increases.
Question : Statement 1: If a good is a luxury, its demand is generally elastic.
Statement 2: Luxury goods tend to have more substitutes, making consumers more responsive to changes in price.
Option 3: Statement 1 is true, and statement 2 is false.
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