Choose the correct option regarding the following statements (i) and (ii). (i) An increase in the income beyond certain limit leads to increase in consumption of necessary goods. (ii) As per the law of demand, price and demand for commodity change in the same direction.
Both the statements are incorrect
Two well-known demand relationships are tested here: Engel's law, which links income with the budget share of necessities, and the law of demand, which links the price of a good with the quantity demanded.
Statement (i) is incorrect. Necessary goods such as food have a low income elasticity of demand. Once income rises beyond a certain level, the consumption of necessities stays almost constant and its share in total expenditure falls (Engel's law); the extra income goes mainly to comforts and luxuries, not to further increases in necessities.
Statement (ii) is also incorrect. The law of demand states that, other things remaining equal, quantity demanded varies inversely with price: a fall in price raises the quantity demanded and a rise in price lowers it. Price and demand move in opposite directions, so the downward-sloping demand curve contradicts the claim that they change in the same direction.
Since neither statement holds, the choices that treat both statements as correct, or only one of them as correct, are all ruled out.
Both the statements are incorrect option is correct.
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