Match the items of the List - I with those of the List - II and indicate the correct code : Code :List - I List - II (a) Positive income elasticity (i) Substitute goods (b) Negative income elasticity (ii) Complementary goods (c) Positive cross elasticity (iii) Inferior goods (d) Negative cross elasticity (iv) Superior goods
(a)-(iv), (b)-(iii), (c)-(i), (d)-(ii)
Option 3 — (a)-(iv), (b)-(iii), (c)-(i), (d)-(ii) is correct.
This item tests the sign conventions of two elasticities of demand: income elasticity (how quantity demanded responds to a change in the consumer's income) and cross elasticity (how the demand for one good responds to a change in the price of another good).
Income elasticity of demand carries the classification of a good by need. When income rises and demand also rises, income elasticity is positive — these are normal or superior goods. When income rises but demand falls, income elasticity is negative — these are inferior goods, whose consumption shrinks as people can afford better substitutes.
Cross elasticity captures the relationship between two goods. A positive cross elasticity means a rise in the price of good Y raises the demand for good X, so the two are substitutes (tea and coffee). A negative cross elasticity means a rise in the price of Y lowers the demand for X, so the two are complements (cars and petrol).
| Item | Meaning |
|---|---|
| Positive income elasticity | Superior / normal goods |
| Negative income elasticity | Inferior goods |
| Positive cross elasticity | Substitute goods |
| Negative cross elasticity | Complementary goods |
Takeaway: the sign of income elasticity separates superior from inferior goods, while the sign of cross elasticity separates substitutes from complements.
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