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.
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 that Giffen goods have a negative income elasticity of demand is correct. Giffen goods are a rare type of inferior goods where the quantity demanded increases as the price increases. However, the reason provided is incorrect. Giffen goods do not defy the normal relationship between price and quantity demanded due to income effects. Instead, the unique behavior of Giffen goods is primarily attributed to the substitution effect outweighing the income effect.
