Question

Consider the statements I, II, and III:

• A. Both II and III are NOT CORRECT, but I is CORRECT
• B. Both II and III are CORRECT, but I is NOT CORRECT
• C. Both I and III are CORRECT, but II is NOT CORRECT
• D. Both I and II are CORRECT, but III is NOT CORRECT

Hint:

For income elasticity: \[ E_Y>0 \Rightarrow \text{Normal goods} \] \[ E_Y<0 \Rightarrow \text{Inferior goods} \] \[ E_Y>1 \Rightarrow \text{Luxury goods} \]

Answer 1

The Correct Option is D

Step 1: Recall income elasticity of demand.
Income elasticity of demand measures the responsiveness of quantity demanded to changes in consumer income.
\[ E_Y=\frac{\%\Delta Q}{\%\Delta Y} \]

Step 2: Analyze Statement I.
For a normal good, demand increases when income increases.
Thus,
\[ E_Y>0 \]
Therefore, Statement I is correct.

Step 3: Analyze Statement II.
For an inferior good, demand decreases when income increases.
Thus,
\[ E_Y<0 \]
Therefore, Statement II is correct.

Step 4: Analyze Statement III.
Luxury goods have income elasticity greater than \(1\).
\[ E_Y>1 \]
Hence, Statement III is incorrect because it says elasticity is less than \(1\).

Step 5: Final conclusion.
Thus, Statements I and II are correct, but Statement III is not correct.
\[ \boxed{\text{Both I and II are CORRECT, but III is NOT CORRECT}} \]
Hence, the correct option is (D).