Question

Match List-I with List-II:
\begin{tabular{|l|l|} List-I (Category of commodities) & List-II (Income elasticity of demand, $\eta_i$)
(A) Normal goods & (I) $\eta_i < 0$
(B) Luxury goods & (II) $0 < \eta_i < 1$
(C) Necessary goods & (III) $\eta_i > 1$
(D) Inferior goods & (IV) $\eta_i > 0$

Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (II), (B) - (III), (C) - (I), (D) - (IV)
• (A) - (IV), (B) - (III), (C) - (II), (D) - (I)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Hint:

Quick summary of Income Elasticity ($\eta_i$):
- $\eta_i < 0 \implies$ Inferior Good (e.g., coarse grains).
- $0 < \eta_i < 1 \implies$ Necessary Good (e.g., salt, basic food).
- $\eta_i > 1 \implies$ Luxury Good (e.g., premium cars, jewelry).
- $\eta_i > 0 \implies$ Broad category of Normal Goods (includes both necessities and luxuries).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Income elasticity of demand ($\eta_i$) measures how responsive the quantity demanded of a good is to a change in consumer income.
\[ \eta_i = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \]
The sign and magnitude of $\eta_i$ help classify goods into different categories.

Step 2: Detailed Explanation:
Let us match the categories with their corresponding values of income elasticity:
- (A) Normal goods: These are goods whose demand increases as consumer income rises.
Therefore, the income elasticity of demand is positive.
Matches with (IV): $\eta_i > 0$.
- (B) Luxury goods: These are a type of normal good where demand increases more than proportionally to the increase in income.
Therefore, the income elasticity is greater than one.
Matches with (III): $\eta_i > 1$.
- (C) Necessary goods: These are essential goods (like food) where demand increases less than proportionally to the increase in income.
Therefore, the income elasticity is positive but less than one.
Matches with (II): $0 < \eta_i < 1$.
- (D) Inferior goods: These are low-quality goods whose demand falls as consumer income rises (consumers switch to better quality substitutes).
Therefore, the income elasticity is negative.
Matches with (I): $\eta_i < 0$.
This yields the matching sequence: (A)-(IV), (B)-(III), (C)-(II), (D)-(I).

Step 3: Final Answer:
The correct option is (C).