Question

Given below are two statements, one is labelled as Assertion (A) and other one labelled as Reason (R).
Assertion (A): Price elasticity of demand for food items is inelastic.
Reason (R): Food items are necessary goods and their demand is satiable.
In light of the above statements, choose the correct answer from the options given below:

• A. Both (A) and (R) are true and (R) is the correct explanation of (A).
• B. Both (A) and (R) are true but (R) is NOT the correct explanation of (A).
• C. (A) is true but (R) is false.
• D. (A) is false but (R) is true.

Hint:

Necessary items (such as salt, medicines, and basic food items) always have highly inelastic demand because consumers must buy them to survive, irrespective of price fluctuations.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. Basic necessities generally exhibit very low price sensitivity.

Step 3: Detailed Explanation:
Let us analyze the individual statements:
- Assertion (A): Food is an absolute necessity for survival. Even if the price of food items rises significantly, consumers cannot easily reduce their food consumption because there are no substitutes for food as a general category. This means the price elasticity of demand for food is inelastic ($\lvert \epsilon \rvert < 1$). Thus, Assertion (A) is true.
- Reason (R): Food items are necessary goods, and their demand is satiable (there is a physical limit to how much food an individual can consume, regardless of how low the price falls). This biological limitation explains why consumers do not drastically change their food consumption behavior in response to price shifts. Thus, Reason (R) is true.
- Causal Link: Because food is an essential good with a physical limit of consumption, consumers maintain a relatively steady consumption level irrespective of price changes. This directly explains why the price elasticity of demand for food items is inelastic. Hence, Reason (R) is the correct explanation of Assertion (A).

Step 4: Final Answer:
Both (A) and (R) are true, and (R) is the correct explanation of (A).