Question : Statement 1: The demand for necessities is generally inelastic.

Statement 2: Necessities are essential goods with limited substitutes, making consumers less price-sensitive in their purchasing decisions.

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: The demand for necessities is generally inelastic. This statement is true. Necessities are goods that are considered essential for daily living, such as food, water, housing, and healthcare. The demand for these goods tends to be less responsive to changes in price because they are deemed necessary and consumers are less likely to significantly reduce their consumption even if the price increases. Therefore, the demand for necessities is generally inelastic.

Statement 2: Necessities are essential goods with limited substitutes, making consumers less price-sensitive in their purchasing decisions. This statement is also true and supports the relationship described in statement 1. Necessities are often goods for which there are limited substitutes or alternatives available. As a result, consumers have fewer options to switch to if the price of a necessity increases. This limited availability of substitutes makes consumers less price-sensitive in their purchasing decisions, contributing to the inelastic demand for necessities.

Both statements accurately describe the characteristics of necessities and their impact on price sensitivity.