Question : Statement 1: Inferior goods have a negative income elasticity of demand.
Statement 2: When consumer income increases, the demand for inferior goods decreases.
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: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: Inferior goods have a negative income elasticity of demand. This statement is true. Inferior goods are goods for which demand decreases as consumer income increases. The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumer income. For inferior goods, the income elasticity of demand is negative, indicating that as income rises, demand for these goods decreases.
Statement 2: When consumer income increases, the demand for inferior goods decreases. This statement is also true and supports the relationship described in statement 1. As consumer income increases, individuals tend to shift their consumption patterns towards higher-quality goods or substitutes, leading to a decrease in the demand for inferior goods.
Both statements accurately describe the characteristics of inferior goods and the relationship between consumer income and the demand for such goods.
