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.
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 false.
Solution : The correct answer is (B) Both statements are false.
Statement 1: The price elasticity of demand for a normal good is always negative.
This statement is false. The price elasticity of demand can be either negative or positive, depending on the responsiveness of quantity demanded to changes in price. For normal goods, the price elasticity of demand is typically negative, meaning that as price increases, the quantity demanded decreases. However, there are cases where the price elasticity of demand for normal goods can be positive, such as with Veblen goods or Giffen goods.
Statement 2: Normal goods exhibit an inverse relationship between price and quantity demanded.
This statement is false. Normal goods generally exhibit a direct relationship or a positive relationship between price and quantity demanded. As the price of a normal good decreases, the quantity demanded typically increases, and vice versa. This is contrary to an inverse relationship where price and quantity demanded move in opposite directions.
Therefore both statements are false.
