Question : Assertion: The demand for addictive goods like cigarettes and alcohol is generally elastic.
Reason: Addictive goods have readily available substitutes, and consumers are more likely to reduce their consumption in response to price increases.
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 is correct because the demand for addictive goods like cigarettes and alcohol tends to be relatively elastic. Elasticity of demand measures the responsiveness of quantity demanded to changes in price. In the case of addictive goods, consumers often have access to substitutes or alternatives, and they may be more willing to reduce their consumption in response to price increases.
However, the reason provided is incorrect. It states that addictive goods have readily available substitutes, but this is not always the case. While some consumers may switch to substitutes or reduce their consumption, addiction can create a strong psychological and physiological dependence on these goods, making the demand somewhat inelastic in certain situations. The reason oversimplifies the complexity of consumer behavior and the factors influencing demand for addictive goods.
Question : Assertion: The demand for essential goods is generally inelastic.
Reason: Essential goods have limited substitutes, and consumers are less price-sensitive in their purchase decisions.
Question : Assertion: The demand for essential goods like food and water is generally inelastic.
Reason: Essential goods have limited substitutes, and consumers are willing to purchase them regardless of price changes.
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 price elasticity of demand for a product is higher in the long run compared to the short run.
Reason: In the long run, consumers have more time to adjust their consumption patterns and find substitutes, leading to greater price sensitivity.
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