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.
Income elasticity measures how demand reacts to income,
\[ E_Y=\frac{\%\,\Delta Q}{\%\,\Delta Y} \]

Step 2: Test statement I.
A normal good is bought more as income rises, so $E_Y>0$. Statement I is correct.

Step 3: Test statement II.
An inferior good is bought less as income rises, so $E_Y<0$. Statement II is correct.

Step 4: Test statement III.
A luxury good has elasticity above one, $E_Y>1$. The statement says less than one, so statement III is wrong.

Step 5: Conclude.
So I and II hold while III does not.
\[ \boxed{\text{Both I and II are CORRECT, but III is NOT CORRECT}} \]