Question

Assertion (A): The demand curve is downward sloping.

Reason (R): The income effect means with a fall in the price of a good, the consumer's real income or purchasing power rises and he demands more units of the good.

Options

• Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true, but Reason (R) is false. 

• Assertion (A) is false, but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:

The income effect states that when the price of a good falls, the consumer's real income or purchasing power increases, causing him to demand more units of the good. This demonstrates that when prices fall, demand rises, and thus the demand curve slopes downward.