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.
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 option is (b) Option B: Statement 1 is false, and statement 2 is true.
Statement 1 is false. If a consumer's demand for a good is income inelastic, it means that a change in the consumer's income would not significantly affect their demand for the good. However, the concept of income elasticity of demand measures the responsiveness of quantity demanded to changes in income. If the income elasticity of demand for a good is less than 1 , it indicates income inelasticity.
Statement 2 is true. When a good is income inelastic, a change in the consumer's income does not lead to a significant change in their demand for the good. This implies that the quantity demanded of the good is relatively unaffected by changes in income.
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.
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 the price elasticity of demand for a product is -0.2, demand is considered inelastic.
Statement 2: Inelastic demand implies that a change in price leads to a proportionately smaller change in quantity demanded.
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: The substitution effect occurs when a consumer switches from one good to another due to a change in relative prices.
Statement 2: The income effect refers to the change in quantity demanded of a good due to a change in the consumer's purchasing power.
Question : Statement 1: The demand for a product is perfectly inelastic when quantity demanded remains constant regardless of price changes.
Statement 2: Perfectly inelastic demand implies that any change in price will cause an infinite change in quantity demanded.
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