Question : Statement 1: Income effect is negative in case of inferior goods.
Statement 2: In case of inferior goods, fall in income leads to decrease in demand for the good.
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.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (C) Statement 1 is true, and statement 2 is false.
Statement 1 is true. The income effect refers to the change in quantity demanded of a good in response to a change in consumer's income. In the case of inferior goods, as income increases, the demand for the inferior goods tends to decrease. Consumers may choose to switch to higher-quality substitutes when their income rises, leading to a negative income effect for inferior goods.
Statement 2 is false. In the case of inferior goods, a fall in income actually leads to an increase in demand for the good. Inferior goods are typically lower-priced alternatives to higher-quality substitutes. When consumers' income decreases, they may choose to buy more inferior goods because they are relatively cheaper compared to other options. Therefore, the demand for inferior goods tends to increase when income falls.
Therefore, statement 1 is true, and statement 2 is false.
Question : Statement 1: Inferior goods have a negative income elasticity of demand.
Statement 2: When consumer income increases, the demand for inferior goods decreases.
Question : Statement1: Revaluation and Appreciation of currency are one and the same thing.
Statement 2: The concepts of demand for domestic goods and domestic demand for goods are same.
Question : Statement 1: The price elasticity of demand for a normal good is always negative.
Statement 2: Normal goods exhibit an inverse relationship between price and quantity demanded.
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.
Question : Statement 1: Price elasticity of demand is not applicable to perfectly elastic demand.
Statement 2: Perfectly elastic demand implies that any change in price leads to an infinitely large change in quantity demanded.
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