Read the following statements carefully.
Statement I: When the price of bananas falls, the consumer’s money income rises.
Statement II: The income effect of a fall in the price of a normal good raises its demand.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Statement I is false but Statement II is true.
A fall in price leaves the consumer’s money income unchanged, but each rupee buys more. What rises is her purchasing power.
Statement I: When the price of bananas falls, the consumer’s money income rises. — False. Her money income stays the same; only its purchasing power rises.
Statement II: The income effect of a fall in the price of a normal good raises its demand. — True. Higher purchasing power raises demand for a normal good, which moves with income.
NCERT (2026-27): “2.4.2 Deriving a Demand Curve from Indifference Curves and Budget Constraints Moreover, as price of bananas drops, consumer’s purchasing power increases, which further increases demand for bananas (and mangoes). This is the income effect of a price change, resulting in further increase in demand for bananas. …” “2.4.3 Normal and Inferior Goods … For most goods, the quantity that a consumer chooses, increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods. …” |