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Question
In the following Question, read the statements and choose the correct alternative among those given below:
Statement 1: Income effect is negative in case of inferior goods.
Statement 2: In case of inferior goods, fall in income leads to decrease in demand for the good.
Options
Both the Statements are true.
Both the Statements are false.
Statement 1 is true and Statement 2 is false.
Statement 2 is true and Statement 1 is false.
MCQ
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Solution
Statement 1 is true and Statement 2 is false.
Explanation:
Demand for an inferior good moves inversely with income, so its income effect is negative. Statement 2 is false: a fall in income generally increases demand for an inferior good.
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