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.
