Question

Statement (1): Normal goods violate the law of demand.

Statement (2): Law of demand is based on the assumption that the commodity is a normal good and has no status value.

Options

• Statement 1 is true and Statement 2 is false.

• Statement 2 is true and Statement 1 is false.

• Both the statements are true.

• Both the statements are false.

Answer 1

Statement 2 is true and Statement 1 is false.

Explanation:

Statement (1): Normal goods do not violate the law of demand; they perfectly conform to it. When the price of a standard good lowers, the quantity requested rises; when the price rises, the quantity demanded decreases.

Statement (2): The law of demand assumes that the product in question is a standard good. If the good has status worth (as in a luxury Veblen good) or is a substantially inferior staple (as in a Giffen good), it will behave as an exception and defy the law of demand.