Read the following statements carefully.
Statement I: The demand for an inferior good falls as the consumer’s income rises.
Statement II: If a good is inferior, its demand must be positively related to its price.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
An inferior good is one whose demand falls as income rises. Such a good becomes a Giffen good only when its income effect is stronger than its substitution effect.
Statement I: The demand for an inferior good falls as the consumer’s income rises. — True. This is what makes a good inferior, like coarse cereals.
Statement II: If a good is inferior, its demand must be positively related to its price. — False. If the substitution effect is stronger, demand for an inferior good still falls when its price rises. Only a Giffen good has demand rising with price.
NCERT (2026-27): “2.4.3 Normal and Inferior Goods … However, there are some goods the demands for which move in the opposite direction of the income of the consumer. Such goods are called inferior goods. As the income of the consumer increases, the demand for an inferior good falls, and as the income decreases, the demand for an inferior good rises. …” “… If the substitution effect is stronger than the income effect, the demand for the good and the price of the good would still be inversely related. However, if the income effect is stronger than the substitution effect, the demand for the good would be positively related to its price. Such a good is called a Giffen good.” |