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.

Correct Answer: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.

Solution : The correct option is b) Option B Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.

The consumer's demand for a luxury good is indeed income elastic, meaning that as the consumer's income increases, their demand for luxury goods increases at a proportionately higher rate. This is consistent with the assertion.

However, the reason provided states that the consumer's demand for luxury goods increases at a proportionately higher rate as income increases. This reason is not a correct explanation of the assertion. The fact that the demand for luxury goods increases at a higher rate as income increases does not explain why luxury goods are income elastic.

The income elasticity of luxury goods is typically attributed to factors such as changing consumer preferences, aspirational consumption, and a higher income elasticity of demand for goods that are considered discretionary or non-essential. These factors contribute to the income elastic nature of luxury goods, where changes in income lead to proportionately larger changes in demand.